Glossary of terms

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Annuity

In pension terminology, periodic payments (usually monthly) provided by the terms of a contract for the lifetime of an individual (the annuitant) or the individual and his or her designated beneficiary; may be fixed or varying amount, and may continue for a period after the annuitant's death.

Autonomous pension plans

Pension funds that are separate institutional units established for purposes of providing incomes on retirement for specific groups of employees and which are organised, and directed, by private or public employers or jointly by the employers and their employees.

Deferred profit sharing plan

An arrangement under which an employer may share profits from their business with all or a designated group of employees to provide pensions.

Defined-benefit plan

A pension plan in which the level of pension benefits promised to participating employees is guaranteed; benefits are related by some formula to participants' length of service and salary and are not totally dependent on either the participants' contributions or the assets in the fund. To be distinguished from a defined-contribution plan.

Defined-contribution plan

A plan under which the amount of the employer contribution per plan member and, where applicable, the amount of the employee contribution is specified in advance and the benefits to be received by the pensioner is calculated at the date of retirement based on the accumulated contributions and the return on the investment of the contributions. Also known as money purchase pension plans.

Funded pension plan

A pension plan that accumulates dedicated assets to cover the plan's liabilities.

Group registered retirement saving plan (RRSP)

An employer-sponsored retirement savings plan, similar to an individual RRSP, but administered on a group basis by the employer.

Non-autonomous pension plans

Pension plans that do not constitute separate institutional units. With this type of plan, the employer maintains a special reserve that is segregated from its other reserves. These pension reserves and/or funds are treated as assets that belong to the beneficiaries and not the employer.

Pay-as-you-go plan

An unfunded pension plan where no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are paid. Pension arrangements provided by the state in most countries in the world are unfunded, with benefits paid directly from current workers' contributions and taxes.

Pension fund

A portfolio of financial assets, forming an independent legal entity, managed for the purpose of meeting retirement benefit payments as defined by a pension plan. The funding instrument is the legal document that defines the obligation of the funding agency (e.g., trust company, insurance company, pension fund society) with respect to the pension plan. It is defined as the agreement or contractual arrangements under which contributions are held, accumulated and invested. In many cases, the individual fund may be split amongst different investment managers through contractual arrangements with any number of trust companies, insurance companies or investment counsellors. An important distinction exists between pension funds and pension plans. In many cases, several pension plans have their contributions consolidated in one pension fund. Alternatively, a given pension plan with a specific investment strategy may choose to direct its generated contributions to more than one pension fund.

Pension plan

A contract between an employer, group of employers or a union, with employees to provide a lifetime income to retired employees for the service they have provided.

Registered retirement saving plan (RRSP)

A savings arrangement available from most major financial institutions that accumulates contributions and investment earnings on a tax-sheltered basis.

Trustee

The fiduciary appointed to oversee the day to day management of property owned by a trust. A trustee can be an individual, an institution, such as a bank or trust company, or a combination of both. A trust is a fiduciary relationship in which individuals (at least three) or a trust company hold title to the assets of the fund in accordance with the trust agreement, for the benefit of the plan members.

Unfunded pension plan

Plan that is financed directly from contributions from the plan sponsor or provider and/or the plan participant. Unfunded pension plans are said to be paid on a current disbursement method (also known as the pay as you go method). Unfunded plans may still have associated reserves to cover immediate expenses or smooth contributions within given time periods.