How To Find The Right Pension Plan For Your Specific Service?
• Pensions are a reality that won't go away and everyone has to deal with it ultimately. Shirking that responsibility is very dangerous as almost everybody can expect to live beyond their retirement age. • There are many pension plans and a little due diligence from your part can avert a big blunder in investments.
What is a Pension Plan? • To put it in simplest terms it is the money contributed by an individual and the company he works for, over the time of employment to benefit the individual upon retirement. • These schemes differ widely in the returns they offer and the way they are offered.
• There are two main types of plans for all pensions and those are defined contribution or money purchase plan and the defined plan. • The plans can be combined to form combination plans also.
• Designed benefit plans are modeled to give a pre determined amount of pension when an individual retires. • This is based on some sort of a plan designed to factor in various things like the amount contributed by the employee and years of service. The employee is given status on his earnings every year.
• There are fixed rate where an amount is fixed per year and the number of years the employee works. • Alternatively there is a plan where the average earning or final earnings is got and a percentage computed on it to be your pension.
• There is another plan where your pension is a fixed percentage of your annual pay. • The other major type of pension an employee can opt for is the defined contribution pension plan. Here the employee purchases or contributes regularly for retirement.
• This is invested on the employee's name in an investment account. Upon retirement the employee is free to use this amount for his expenses. • One major drawback is that the employee has no idea of the amount he incurs until after retirement.
• Sometimes this plan may backfire as the employee may not be aware of his future expenses and cannot plan properly for it. • Sometimes this plan is designed in a way that the investments are designed by a board of trustees on behalf of the employee.
• There are also unregistered plans which are offered to the employees as incentives. They are deferred profit sharing plan and employee stock purchase plan. • These plans do well if the company performs well.
• So this is a risky venture as the markets are often volatile and unpredictable. But if the company does well the employee stands to benefit a lot.
• Stock option plan is another option offered to the individual in the company. The employee can buy stocks at a lower rate and can sell whenever they want. • The company offers a good contribution to this stock. Again this option may go either way.
• So evaluate all the options and discuss this with your personal Cork financial adviser to pick what's right for you.