Explanation of pension plans
In a pension plan, the employer and employee decide on how the pension agreement will be implemented. As an employer, you can choose from 3 different pension plans.
1. The final salary plan: based on the last earned salary of your employee.
This plan is based on the benefit agreement. The pension benefits for the employee and his/her family members are predetermined and are based on the last earned salary of the employee.
Advantages of the final salary plan
- Fixed pension benefit based on the last earned salary.
- There is optimal pension buildup with increases in salary.
- Every year of service is included.
- Every increase in salary leads the employer to add funds to the benefit from the employee’s previous years of service.
- A decrease in salary (lower position, working less) can have very negative consequences for the pension income.
2. The average salary plan: based on the average salary of your employee.
This plan is based on the benefit agreement. The pension benefits for the employee and his/her family are predetermined and are based on the average salary of the employee.
Features of the average salary plan
- Fixed pension benefit based on the average salary earned.
- Salary increases are only related to future years of service.
- If there is a sharp increase in salary, there is a greater chance of a pension deficit.
3. The available premium plan: the starting point is the available budget.
With this plan, the premium paid by the employer is predetermined. The premium depends on the salary of the employee. After covering the risks of death, disability and waiving of the premium, the remaining premium is used to build up the pension. The remaining premium (the built up pension capital) is invested by the insurance company. The pension is repurchased with the accumulated capital upon retirement.