A pension plan is a financial arrangement designed to provide individuals with a steady income after they retire. Essentially, it’s a long-term savings plan that helps people accumulate funds during their working years, which are then used to support their lifestyle once they stop working. Pension plans can take different forms, but they generally work by either pooling contributions from both employers and employees (in employer-sponsored plans) or by allowing individuals to contribute on their own (in personal pension plans).

There are two main types of pension plans:

1. Defined Benefit Plans: These provide a guaranteed payout based on factors like salary and years of service. The amount you receive in retirement is predetermined, giving you a clear idea of your future income.

2. Defined Contribution Plans: In these plans, both the employee and employer contribute to an investment fund. The amount available at retirement depends on the contributions made over time and the performance of the investments, meaning the final retirement income is not fixed.

A pension plan ensures that individuals have the financial resources to live comfortably after retiring, providing peace of mind that they won’t outlive their savings. It can be customized to suit an individual’s needs, preferences, and retirement goals, ensuring they can achieve the lifestyle they desire in their later years.