Pension & Welfare Benefits

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    Function

    • Your retirement benefits are defined by your employer in one of two ways. A defined benefit plan pays a specific benefit to you. A defined contribution plan makes no guarantees of income. Instead, it offers a fixed contribution and the benefit is determined by the underlying investments in the pension plan.

    Benefits

    • Your retirement is either fully or partially funded by your employer. Depending on the contributions and the benefits payable, you won't need to save up as much money in your personal savings for retirement. Under a defined benefit plan, you are certain of your benefit throughout your working years. Under a defined contribution plan, you may not need to use any of your personal savings if the underlying investments do well.

    Drawbacks

    • Your employer determines your retirement. If your employer sets the defined benefit plan too low, or the investments in the defined contribution plan do not perform as expected, then your retirement could be in jeopardy. Because someone else is in control of part of your retirement, it may not be clear how much money you need to save for your retirement.

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