Pension plan or retirement plan are investment plans that helps an individual assign a part of their savings to collect over a period of time and provide them with steady income after retirement. These plans provide financial security to live with pride without compromising on the standard of living after the retirement. The sum gained at the end of term is known as annuity or pension.
This plan requires an employer to contribute into a pool of funds set aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf and the earnings on the investments generate income which is utilized by the employee upon retirement. Some pension plans also have a voluntary investment component in addition to an employer’s contribution. In this type of plans, an employee may provide part of their current income into an investment plan to support fund retirement.