Pension Plan
Definition Pension Plan - What is it?
A pension plan is a financial instrument of savings-investment oriented to retirement, where the objective is to make periodic (or extraordinary) contributions in the long term.
This type of private savings plans are intended to complement the contribution of the public pension system at retirement.
These plans can be:
- Individual pension plan: an employee makes contributions to his or her private plan.
- Employment pension plan: the company makes contributions to pension plans created for its employees.
Pension plans are managed by private entities that manage the pension fund.
These entities charge a pension fund management fee to each pension plan owner.
The assets of the pension fund are formed by the sum of all the contributions of each pension plan owner and work in the same way as an investment fund. It can have profitability or it can have losses, the profit is not assured.
The main characteristic of this type of plan is the lack of liquidity, since it is only possible to recover your pension plan under certain circumstances:
- retirement,
- survival,
- widowhood,
- existence,
- orphanhood or
- disability
How does a pension plan work?
The idea is very simple: periodic or one-time contributions are made every year up to a certain limit established by the government.
These contributions are voluntary in amount and frequency.
Unless any of the above situations occur, the most normal form of redemption will be when we retire.
Frequently Asked Questions (FAQ)
If you want a future plan that protects you and your family, without the drawbacks of a pension plan, this is the best savings plan.