A pay-as-you-go pension plan (also called a "pre-funded pension plan") is a retirement scheme, where a contributor can choose either a regular contribution deducted from each paycheck or make a lump sum contribution to a retirement fund.[1]

With such a plan, the contributor decides how much to contribute to the fund and chooses how it is invested. Upon retiring, the contributor can have the fund balance paid in a lump sum, in monthly installments, or in a combination of the two.

Difference

Private pay-as-you-go pension plans are not to be confused with pay-as-you-go pension systems. The latter term refers to state pension systems that are funded by contributions from current workers (rather than by individual past contributions from current beneficiaries).[2] The underlying pay-as-you-go (PAYG or PAYGO) principle is applied in social insurance systems across the world.

References

  1. ↑ Kagan, Julia. "Pay-As-You-Go Pension Plan Definition". Investopedia. Retrieved 2020-07-12.
  2. ↑ "pay-as-you-go pension system". Oxford Reference. Retrieved 2020-07-11.
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