Pay As You Go Pension Plan

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DEFINITION of 'Pay As You Go Pension Plan'

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.

INVESTOPEDIA EXPLAINS '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
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    There are not many differences between a pay-as-you-go pension plan and a 401(k). Both require contributions from the employee, ... Read Full Answer >>
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