Pensions are a type of retirement plan that provides a source of income for individuals after they have finished working. In the simplest terms, a pension is a promise made by an employer to pay a certain amount of money to the employee once they retire. This promise is usually based on factors such as the employee’s salary, years of service, and age at retirement.

The two most common types of pensions are defined benefit and defined contribution plans. Defined benefit plans guarantee a specific amount of income to the retiree based on a formula that takes into account the employee’s salary and years of service. The amount is usually paid out on a monthly basis for the rest of the retiree’s life. Defined contribution plans, on the other hand, do not guarantee a specific amount of income. Instead, the employer and employee contribute to the plan, usually through regular payments, and the amount the employee receives at retirement depends on how well the investments in the plan have performed.

It is important to understand the basics of pensions because they are an essential part of retirement planning. Knowing the type of pension you have, the benefits it provides, and how it will impact your retirement income can help you make informed decisions about your savings and investments. Understanding the difference between defined benefit and defined contribution plans can also help you choose the right type of pension for your specific needs and goals. By educating yourself