What is a Pension?

What is a Pension?

Pensions are income streams guaranteed to employees upon their retirement. A Pension is a type of Defined Benefit Plan in which your employer promises to pay you a certain amount every month for the rest of your life.

Employers who are part of the pension plans are sometimes called pensioners. An employer retains the funds in a trust, usually, and everyone’s pension assets are pooled together in what’s called a Pension Fund.

The employer bears the investment risk of the assets, and takes full responsibility to pay the pension amount guaranteed to employees. The amount of the payments depends on many factors, such as your age, your salary, and the amount of years you have worked for the company.

Of course, keep in mind that if your employer goes bankrupt, your pension is usually gone, and the pension liabilities sometimes contribute to such bankruptcies if the employers don’t manage the assets well.

Pensions have been used less in the last 30 years since the advent of 401(k)s and other alternatives. Existing pensions are often closed, meaning they aren’t taking in new employees to the plan, but will continue to administer the existing plan.

How Do I Invest Money in My Pension?
Will My Pension Payments Affect My Social Security Payments?