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Pension Options

By: EconomyWatch Content Date: 12 October 2009

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Growth in financial activity around the world has led to the emergence of several retirement plans. Lack of financial literacy might confuse an individual while choosing from the wide range of pension options. The choice of pension plans determines the awards s/he will receive after retirement. Once an individual begins to receive retirement benefits, the pension plan cannot be changed or modified. Thus, an individual remains under a lot of pressure while choosing from the different pension options.

Pension Options: Most Common Choices

The most common pension options available under different retirement plans across the world include:

· Plan 1: This is the standard pension plan that offers maximum monthly retirement benefits for the lifetime of an employee. The pension payment and benefits are regulated by the terms and conditions detailed in the policy plan.

· Plan 2: The plan offers limited retirement benefits for the lifetime of the employee and after his or her death to the named beneficiary. The pension benefits continue till the death of the named beneficiary.

· Plan 3: This plan is similar to Plan 2. It offers reduced monthly benefits for the lifetime of the employee and continues benefits after the death of the employee to the spouse, beneficiary or the estate.

· Plan 4: This offers a lump-sum return of all or a portion of the employee’s contributions to the retirement plan, apart from the monthly pension benefits.

Pension Options: Essential Considerations

Here are some essential considerations for employees while choosing between the pension options:

· Set priorities: An individual should select a pension option that caters to his/her financial priorities. For example, if an individual has dependents, s/he would prefer a pension plan that offers benefits even after death as well. If the person feels the need for lump-sum amount after retirement, then s/he should opt for Plan 4.

· Ensure guaranteed return: Choose a plan that offers guaranteed returns over a longer duration of time instead of a plan that comes with maximum benefits but for a short time.

· Tax benefits: Look for tax benefits while selecting a pension option. Not all retirement plans offer 100% tax benefits.

To get detailed information about the different pension options and the benefits offered by them, one can search online through banks’ websites or consult with state pension authority.