Pension plan is a qualified retirement plan established by a corporation, government, labor union or other organizations for its employees. The plans that can be offered by a business include a profit-sharing plan, an Employee Stock Ownership Plan (ESOP), a stock bonus plan, a defined benefit plan or a money purchase pension plan.

Generally speaking, pension is an arrangement to make income available for people when they stop earning income from a regular employment. It is a form of tax deferred savings vehicle which permits a tax-free fund accumulation for future use as a retirement income. Do not confuse pension with severance packages; while pension is paid in regular installments, severance packages are paid in one lump sum.

Retirement plan (or superannuation) refers to pension which is granted when the individual involved retires. As said earlier, this program may be established by the government, the employers, insurance companies or other organizations such as trade unions or employers association. While the United States refer to this program as retirement plan, United Kingdom calls it pension schemes while Australia, Trinidad as well as Tobago Police service calls it superannuation. Retirement pensions are characteristically in the form of guaranteed life annuity, thereby insuring against longevity risk.

When a pension is structured by an employer for the benefit of its employee, that type of pension is generally known as employer or occupational pension. Remember that the government and institutions like the labor union can sponsor pension also. Employer’s pensions are a deferred compensation pension form; for the purpose of tax, this form of pension is beneficial to both the employer and employee. A good number of other pensions also comprise of extra insurance aspect, because they will often pay benefits to disabled beneficiaries or survivors. Pension is usually received under pre-determined legal/or contractual terms. The person who receives pension is called a pensioner or retiree.

Benefits
Retirement plans could be categorized as defined benefit or defined contribution based on how the benefits are derived. With a defined benefit, a certain payout at retirement is guaranteed, based on a fixed formula which would normally be determined by the member’s salary as well as how many years membership in the plan. A defined contribution plan will offer a payout at retirement that is based on the contributed amount of money and also the effectiveness of the utilized investment vehicles.

Other retirement plans like the cash balance plans will merge both the features of defined benefits as well as defined contribution plans; more often, this combined plan is called hybrid plans and has grown in popularity in the United States since the 1990s. An instance of this is the Cash Balance and Pension Equity plan. Most times, retirement program needs the employer and the employee to make contribution to a fund all through employment; this will enable the receiving of defined benefits when retired. Also, government and other bodies can provide funding for pension. Some of the pension programs will make provision for members should they suffer disability.