A Pension for Life

No one can predict the future, but when we look back from where we are today, we can see that people are living much longer than they used to live. In fact, we are starting to see that some people will be retired longer than they ever worked. 

  • The good news for LAPP members is that no matter how old you get, once you retire and start collecting your pension, you will receive it for as long as you live. 
  • LAPP is a defined benefit pension plan. This means that the pension paid to you each month (your benefit) can be estimated in advance (defined) and will be paid to you for life. 
  • Your pension is calculated based on your salary and the number of years you have been a contributing member of the plan. It is not based on the amount you pay in contributions or the amount earned investing that money.

Other people have employment pensions called defined contribution plans. With these plans the thing you know in advance is how much you will pay toward your pension. What isn’t known, is how much you will have when you retire or whether it will be enough to last you. The pension you end up with will be based entirely on how much was contributed, how the money was invested and how much was earned. 

The essential difference between the two plans, and the thing that gives the defined benefit plan its significant advantage, is the power of pooling. In a defined benefit plan like LAPP, all of the money contributed by all of the members and their employers is pooled into one large investment fund and invested over the long term. Risks are also pooled and shared by all Plan members, averaged out over time. You can read more about how risk is managed in the Plan in the section Your Pension is Secure.

In a defined contribution plan, your contributions are kept in a separate individual fund, invested by you. You bear all of the risk with this type of plan, including the very real risk that you could outlive your money. We call this risk, longevity risk, and in a defined benefit plan like LAPP, this risk is pooled and you are protected with a pension for life. 
 

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