Jump to navigation Jump plans for business search This article is about the retirement income arrangement.
The examples and perspective in this article may not represent a worldwide view of the subject. The terms «retirement plan» and «superannuation» tend to refer to a pension granted upon retirement of the individual. Retirement plans may be set up by employers, insurance companies, the government or other institutions such as employer associations or trade unions. A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Labor unions, the government, or other organizations may also fund pensions.
The common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal or contractual terms. A recipient of a retirement pension is known as a pensioner or retiree. A retirement plan is an arrangement to provide people with an income during retirement when they are no longer earning a steady income from employment. Often retirement plans require both the employer and employee to contribute money to a fund during their employment in order to receive defined benefits upon retirement.
It is a tax deferred savings vehicle that allows for the tax-free accumulation of a fund for later use as a retirement income. Plans countries also grant pensions to military veterans. United States Department of Veterans Affairs. For hoc committees may also be formed to investigate specific tasks, such as the U. Typically this requires payments throughout the citizen’s working life in order to qualify business benefits later on. A basic state pension is a «contribution based» benefit, and depends on an individual’s contribution history. Many countries have also put in place a «social pension».
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These are regular, tax-funded non-contributory cash transfers paid to older people. Over 80 countries have social pensions. Some are universal benefits, given to all older people regardless of income, assets or employment record. Some pension plans will provide for members in the event they suffer a disability. This may take the form of early entry into a retirement plan for a disabled member below the normal retirement age.
Retirement plans may be classified as defined benefit or defined contribution according to how the benefits are determined. A defined benefit plan guarantees a certain payout at retirement, according to a fixed formula which usually depends on the member’s salary and the number of years’ membership in the plan. Some types of retirement plans, such as cash balance plans, combine features of both defined benefit and defined contribution plans. They are often referred to as hybrid plans. Such plan designs have become increasingly popular in the US since the 1990s. Examples include Cash Balance and Pension Equity plans. Government pensions such as Social Security in the United States are a type of defined benefit pension plan.
The benefit in a defined benefit pension plan is determined by a formula that can incorporate the employee’s pay, years of employment, age at retirement, and other factors. A simple example is a Dollars Times Service plan design that provides a certain amount per month based on the time an employee works for a company. 3,000 per month to a retiree with 30 years of service. Averaging salary over a number of years means that the calculation is averaging different dollars. For example, if salary is averaged over five years, and retirement is in 2009, then salary in 2004 dollars is averaged with salary in 2005 dollars, etc.
2004 dollars being worth more than the dollars of succeeding years. The pension is then paid in first year of retirement dollars, in this example 2009 dollars, with the lowest value of any dollars in the calculation. This effect of inflation can be eliminated by converting salaries in the averaging years to first year of retirement dollars, and then averaging. A traditional pension plan that defines a benefit for an employee upon that employee’s retirement is a defined benefit plan. If the pension plan allows for early retirement, payments are often reduced to recognize that the retirees will receive the payouts for longer periods of time.
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