Funded pension schemes

Updated: Aug 20, 2021

These are pension schemes where contributions are put into a specific fund and invested to produce an income sufficient to pay all pension entitlements as and when they become due. In this way they are not dissimilar to investment companies, payments out to members being companies, payments out to members being dividends.

All private portable pension schemes are funded schemes, as are many, if not most, occupational, contributory and trade union pension schemes. Because of the existence of so many self-financing schemes, pension funds are a major force in the investment market and offer a vast potential source for healthy companies looking for additional finance. Pension funds are likewise becoming the most ubiquitous of the institutional shareholders and their influence is continually increasing, particulariy now that tax concessions encourage individuals to save through pension schemes out of untaxed income rather than to save through private investment out of taxed income. The principal non-funded pension schemes are the state earnings related pension scheme and most of those providing non-contributory or ex gratia pensions.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.