Economy

What is a pension fund? »Its definition and meaning

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A pension fund is an asset that has been established to comply exclusively with the retirement plans of a company. The contributions that make up this fund are made in part by the employers and the other by the employees. These financial assets are intended to produce permanent long-term growth.

This fund grants pensions to those workers who complete their working years and begin their retirement. Generally, there are agencies that serve as intermediaries and are responsible for the management and administration of this type of funds.

Pension funds are a kind of savings account where the contributions plus the interest generated by the investment are gathered. These funds invest in many financial assets in order to obtain the necessary utility to guarantee the pensions of the insured. In this way, there is a variety of pension funds, depending on the markets where the investment is made:

  • Fixed income (the investment is in fixed income assets).
  • Long-term fixed income (the investment portfolio must have a duration of more than two years).
  • Mixed variable income (the investment is between 30 or 75% of variable income and the rest in fixed income)
  • Equities (at least 75% must be invested in equities and the rest in fixed income.

Each insured may choose the fund that best suits him according to profitability and risk.

This savings plan produces a series of advantages, among which are: it makes it possible to establish an income for retirement. The contributions contributed have a significant tax reduction (this will be subject to the laws of each country). Once the person retires, they can begin to collect this benefit, in addition to the pension for social security.

Its disadvantage lies in the lack of liquidity, since the money can only be enjoyed once you retire from the company, or in certain exceptional cases such as disability or death.

Pension funds are of great importance, since once the worker completes his years of service, he will be able to rest easy, since he will have a monthly amount, a product of the savings of so many years of work