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A Pension annuity is a type of pension plan that one receives upon retirement. There are a variety of pension plans designed by and for employers. Typically an individual employee can either withdraw partial payments as he or she sees fit, or the individual receives a pension annuity payment.
Pension annuities pay an individual a set amount of money from the pension fund each year. The employer typically promises annual annuity payments upon retirement. These payments can last for the remaining lifetime of the recipient or individual or until the annuity runs out of money.
Employers usually purchase pension annuities for individuals using the individual pension fund created from defined contributions. These defined contribution pension plans are created by employers for employees and involve deposits into the fund over the period of employment. Once the employee retires, the funds in the account are used to purchase an annuity for the individual.
Pension annuities are typically funded by individual accounts that have been invested over the period of employment, and not directly invested into an annuity until after retirement. The annuity then pays the individual retiree an annual payment for the remainder of the lifetime or until the annuity is gone. The type of payment depends on the type of annuity purchased.
Typically the amount of money paid out of an annuity is dependent upon the amount paid into the pension annuity. Both pension funds and annuities have varying types of plans that can depend on the employer, individual, and funds available.
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