Understand Pension System
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Pension usually is one arrangement where the employees are provided with some kind of income once they retire out of their jobs. Pension should not be thought of as the severance payment as pension is always paid in the form of regular installments while the later is paid as a lump sum amount.
A pension is also referred to as the employer pension or as the occupational pension. Pension is a word that is most commonly used for describing the payments that the employee receives after retirement. This happens under certain defined contractual terms and conditions. The person who receives pension funds is known as the retiree or the pensioner.
There are many kinds of pension plans available. These include the retirement pension plans as well as the disability pensions. While the first one is an arrangement of providing some amount of money after retirement, the later one is provided to the people suffering from any kind of a disability.
Most commonly whenever one talks of a pension plans, it is normally taken as the retirement pensions only. Retirement pension plans again are of various kinds, for instance there are defined contributions or the defined benefits pension plans. They are called so depending on the ways of determination of these benefits.
While the defined benefit pension plan offers a specific amount of money after retirement as per a pre defined formula that generally depends on the pensioner’s salary as well as service tenure, the defined contributions pension plan provides the amount which depends on the amount that is contributed.
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