Pay As You Go Pension Plan

What is a 'Pay As You Go Pension Plan'

A pay as you go pension plan is a retirement scheme where the plan beneficiaries decide how much they want to contribute either by having the specified amount regularly deducted from their paycheck or by contributing the desired amount in a lump sum. A pay as you go pension plan is similar to a 401k. The employee can choose among the various investment options and decide on whether they want a higher return by investing in a more risky fund or a safer fund which provides steady returns.

BREAKING DOWN 'Pay As You Go Pension Plan'

When retirement age comes along, the beneficiary can choose to either receive the benefits in a lump sum or as a lifetime annuity where the benefits are spread in monthly payments throughout the beneficiary's lifetime. This is different from a fully funded pension where the company fully funds, manages and distributes the benefits at retirement.

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RELATED FAQS
  1. How do pay-as-you-go pension plans work?

    Learn what a pay-as-you-go pension plan is and how it is different from fully funded pension plans. Understand how public ... Read Answer >>
  2. What are the differences between a Pay As You Go plan and a 401(k)?

    Compare a 401(k) plan with a pay-as-you-go pension plan; both offer investment flexibility and control by the participant ... Read Answer >>
  3. How do Pay As You Go pension plans work?

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  4. What are the main differences between a provident fund and a pension fund?

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  5. Who bears the investment risk in 401(k) plans?

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