The Benefits Of Retirement Pension

1700 WordsApr 7, 20167 Pages
News about reversing Old Age Security eligible age back to 65 and including this in Liberal’s first budget which is announced by Prime Minister recently, has been intensively debated (Harris, 2016). This also raises people’s concerns about retirement pension fund defined as investment plan or fund that provide employees with a certain amount of income during their retirement (Morley, 2012). Reversing retiring age is a controversial policy because it has two sides. Retiring earlier means that employees can start enjoying their rest of life earlier, whereas, in the meanwhile, they need more money to cover their living spending during their longer retirement period. Typically, both employees and employers contribute a certain amount of money…show more content…
Under DB plan, if the investing rate of return turns out to be lower, employers will suffer a loss because future payments are fixed. Therefore, employers bear the major risk. With respect to DC plan, since future benefits are variable, employees endure the risk of a low rate of return. Even though DC plan requires employees to be responsible for the uncertainty of future income, it doesn’t mean that DC plan is a bad choice. On the contrary, it is much more popular than DB plan. Compared to DC plan, contributions under DB plan are variable, which means that employees may need to pay a relatively large amount of money. Besides, DB plan is generally more expensive than DC plan. Thus, younger employees who tend to change their job in the future will choose DC plan as a means of saving cost so that they can have more available cash to make other investments or cover additional loans. Whereas, older employees, especially those who are near retiring age should prefer DB plan because they certainly want to gain a fixed amount of income in the future. This also raises an ethical issue regarding shifting DB plan to DC plan. As DB plan is costly for both employees and employers, if employers decide to close DB plan to DC plan, the way employers use to implement the shift will result in different consequences for employees. Shifting from DB plan to DC plan will generate fairness issues regarding the shift of risk and
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