Pension

A pension is a steady income given to someone. If pensions are part of a system of social security, the recipient of the pension is usually retired or disabled. They either have worked a long time during their life, or they are physically unable to do so. A pension is usually paid until a certain date (or event) occurs. In the case of social security plans, pensions are usually linked to the life of the person who receives the pension.

A defined Benefit pension defines the benefit to the worker based on salary basis, years worked, and a multiplier. An example might be 2@55 final 3, meaning that the annuity is the highest 3-year average salary times years worked times 2% (if age 55). A worker with 30 years service would receive 2*30 or 60% of their salary. Some systems allow a worker to receive more than 100% salary by various maneuvers to alter the final salary basis.

A defined Contribution pension defines the contribution, without constraining or promising a certain benefit. For example, a company might contribute 10% of a worker's salary to a pension account of the worker's choice, with final benefit received linked to the performance of the investment chosen.