Pension is an arrangement which provides income when a person is no longer earning. It is also an arrangement which is designed to provide an income for people who have retired. A pension may be obtained either through the employee’s company or through insurance companies through their pension or retirement plans. Pension plans are a benefit which most government and corporate employees opt for. If the pension plan is in collaboration with any insurance company, planning and choosing the right scheme and investing at an early age is recommended if a person wants to enjoy the golden years of retirement. And hence pension plans are usually called as retirement plans too.
Pension plans are usually tax exempted. When retirement plans are provided by the company, the employer contributes to a collection of funds which is set aside for the employee’s future. On the employee’s behalf, this amount is invested and repaid when the employee retires. There are two types of pension plans offered by the company: defined contribution plans and defined benefit plans. In defined contribution plans, a lump some amount is set aside to be paid after the retirement. In case of defined benefit plans, the company makes a contribution of a predefined amount for the employee but the returns of the scheme would depend on the investment’s performance.