A pension provides regular income payments that you would receive for the rest of your life when you stop working--typically when people retire. A pension plan is a large pool of savings grows over time through contributions from workers or plan participants and their employer or plan sponsor. The plan assets are managed by professional investment managers, and most of the risks (such as investment risk) associated with managing plan assets will be assumed by the plan sponsor rather than plan participants. Particulars will vary from plan-to-plan. For example, there are variables such as how the money or contributions are set aside, who makes contributions, how the income is generated, when payments are made, the types of payments that are made, and how long pension payments last. The basic idea is that the longer you work the higher the payout. There may be tax breaks for pension contributions and there are limits on how much can go into a plan. Many pensions are payable to a surviving spouse on the death of the policyholder, and some pension payments are inflation-adjusted. The term pension is most often associated with defined benefit pension plans that provide regular, annuity-like payments to retirees. This is in contrast to defined contribution plans such as the 401k that shift most responsibilities onto employees and do not provide guaranteed lifetime income.

An Interview with Peter Nakada of RMS

Peter Nakada is a Managing Director, capital markets at Risk Management Solutions (RMS).  We had a chance to speak to Peter about...

Moshe Milevsky Discusses Tontines for the 21st Century

Moshe Milevsky is an Associate Professor in Finance at the Schulich School of Business at York University, and he is one of the world’s leading authorities on retirement income.  Professor Milevsky recently published and presented an...

Noteworthy Reads - October 17, 2013

- Buffett and Berkshire adding equity exposure to defined benefit pension plans (Bloomberg)

- Why does something that “should” happen once every 7,000 years happen every 4 years (Bloomberg)

- Obamacare implementation exposes vulnerable retirees to gaps in the system (Bloomberg)

- Machines continue to hollow-out certain sectors of the economy (...

Key Phrases Autotag: 

Annuity Duration

Duration is a measure of the time associated with cash flows or payments from a bond. Duration measures the amount of time (in years from the purchase date) required for a bond owner to receive interest and principal payments that are equal to the cost of the bond.

Long duration bonds have payments that are spread-out over a relatively long period of time (e...

A Capital Market for the Risks of Aging Societies

Swiss Re is very good at highlighting the scale of longevity risk on a global basis and the challenges--financial and otherwise--that result from aging societies. A recent report from Swiss Re highlights the magnitude of the longevity risk challenge and calls for the development of a capital market to deal with the high hurdle of funding longer lives. Points from the report that highlight the scope of longevity risk include: The aggregate value of defined benefit pension liabilities on a global...