An annuity is a payment type which takes the form of monthly instalments for a specific period of time, or for the life of the recipient. A pension is a retirement plan in which the benefits are paid as an annuity, so often in common vernacular, they are the same thing.

  • An annuity is a payment type which takes the form of monthly instalments for a specific period of time, or for the life of the recipient.
1

Pension

A pension is the benefit paid from a defined benefit plan. The pension usually comes in the form of an annuity.

2

Pension Benefits

The annuities can be paid as single life (for the life of the participant) or joint and survivor (for the life of the participant and then a surviving spouse).

3

Annuity

Annuities are not only bought to pay pension benefits, any person can purchase an annuity from an insurance company for any reason. Most often, they are to provide a guaranteed monthly income in retirement or to a child or spouse.

4

Annuity Types

In addition to single life and joint and survivor, there are certain and life annuities. Certain and life are guaranteed for a time, such as 10 years (even if the recipient dies) and then for the remainder of his life.

5

Significance

Annuities, whether from a pension or not, are an excellent way to provide a floor benefit in retirement or to provide income security to a dependent.