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.

The Link between Annuities and Retirement Well-Being

It appears that people who have access to the pension-like, guaranteed lifetime income that comes from annuities might be happier in retirement.

The empirical basis for this possible correlation between annuities and retirement satisfaction is in a working paper by Constantijn W.A. Panis, Ph.D.   This working...

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Meir Statman on the Behavioral Obstacles Affecting Investing and Retirement Planning

Meir Statman is the Glenn Klimek Professor of Finance at the Leavey School of Business, Santa Clara University, and Visiting Professor at Tilburg University in the Netherlands.

His research on behavioral finance has been supported by the National Science Foundation, CFA Institute, and Investment Management Consultants Association (IMCA) and...

Rising Longevity Driving Increases in UK Pension Liabilities

Reuters reports that corporate pension obligations in the UK are increasing as a result of improving life expectancies. According to consultancy Aon Hewitt, there has been a "huge amount of improvement in terms of life expectancy assumptions" over the past 10 years. The flipside of this increasingly longevity is the risk that it presents to those who must finance greater longevity. For example, it is estimated that rising rates of longevity contributed 5 billion pounds to British corporate...

Retirees Suffer in Current Low Interest Rate Environment

Financial Times personal finance columnist Matthew Vincent discusses the challenges that retirees face in the current economic environment. The gist of the story is that these are brutal times for savers who need to generate interest income to fund current spending needs. In other words, these are brutally difficult times for many retirees.
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GlaxoSmithKline Purchases Bulk Annuity Contract for Pension Plan

The Trustees of the GlaxoSmithKline pension plan have entered into a bulk annuity purchase agreement with Prudential UK. GlaxoSmithKline ("Glaxo") will purchase bulk annuities from Prudential to cover approximately 15 percent of its UK defined benefit pension plan. The total value of the transaction is estimated to be approximately 900 million pounds Sterling.