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Difference Between Annuity and Pension

Annuity vs Pension

Annuity and pension are funding schemes after retirement. Though most of the people do not consider any difference between the two, they have some differences that include funding schemes. In all, pension scheme is more known to every one than annuity.

Pension is the financial benefit individuals receive after they have retired from service. Annuity is also a pension scheme but there is no need for a person to get retirement from service for availing it.

A difference that can be seen between pension and annuity is in the payment amount. The pension is determined by the sum that one has earned during his service and adjusted for the duration of his career. Annuity is a scheme that is determined by the amount of investment made by a person towards the scheme.

There is also difference in the sum paid between pension and annuity. Lump sums are generally included in pension scheme but they are given on a monthly basis. On the other hand, a person can get lump sums if he has enrolled in annuity scheme.

Though the sum given in pension and annuity is fixed with variation calculated on the basis of cost of living standards, some annuities pay more or less of the amount depending o0n the investments the persons have made.

Pension given to a person is generally converted into a family pension after his demise. Annuity is paid in three categories — single life, joint and survivor.

Annuity can be bought from any insurance company but pension is one that one cannot be bought. Pensions are generally given for government jobs.

Summary

  1. Pension is the financial benefit individuals receive after they have retired from service. Annuity is also a pension scheme but there is no need for a person to get retirement from service for availing it.
  2. The pension is determined by the sum that one has earned during his service and adjusted for the period of his career. Annuity is a scheme that is determined by the amount of investment made by a person towards the scheme.
  3. Lump sums are generally included in pension scheme but they are given on a monthly basis. On the other hand, a person can get lump sums if he has enrolled in annuity scheme.
  4. Some annuities pay more or less of the amount depending o0n the investments the persons have made.

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