PENSION PLANS (1)
What is pension plan?
This is an arrangement which takes care of how funds are being set aside for the purpose of pension payment and how the regular payment are disbursed to the retiree.
The above definition looks at the plan from the funding aspect as well as the regular disbursement of the fund to the retiree.
Contributory and non-contributory pension plans
Contribution to the fund could either be contributory or non-contributory. It is contributory when the employer and the employee contribute a percentage of the latter’s approved salary into the fund. On the other hand, if it is non-contributory, then only one party contributes, mainly the employer.
Defined Benefit and Defined contribution Plans
The pension benefit could be arraigned from the perspective of being defined from inception of the pension contract. This is called defined benefit scheme. The other type is called defined contributory whereby the contributory is defined from inception as against the benefit to be derived under the scheme.
To be continued…
Adapted from the book Planning A Blissful Retirement by P. Tai Adediji. pg.43-44
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