What Is the Difference Between a Retirement Annuity & a Pension Fund?

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An annuity is a payment type which takes the form of monthly installments for a specific period of time, or for the life of the recipient. A pension is a retirement plan in which the benefits are paid as an annuity, so often in common vernacular, they are the same thing.

Pension

  • A pension is the benefit paid from a defined benefit plan. The pension usually comes in the form of an annuity.

Pension Benefits

  • The annuities can be paid as single life (for the life of the participant) or joint and survivor (for the life of the participant and then a surviving spouse).

Annuity

  • Annuities are not only bought to pay pension benefits, any person can purchase an annuity from an insurance company for any reason. Most often, they are to provide a guaranteed monthly income in retirement or to a child or spouse.

Annuity Types

  • In addition to single life and joint and survivor, there are certain and life annuities. Certain and life are guaranteed for a time, such as 10 years (even if the recipient dies) and then for the remainder of his life.

Significance

  • Annuities, whether from a pension or not, are an excellent way to provide a floor benefit in retirement or to provide income security to a dependent.

References

  • Photo Credit Jupiterimages/Brand X Pictures/Getty Images
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