Unfunded pension plan

(redirected from Unfunded Pension Schemes)

Unfunded pension plan

Provides for the employer to pay out amounts to retirees or beneficiaries as and when they are needed. There is no money put aside on a regular basis. Instead, it is taken out of current income.

Unfunded Pension Plan

A pension plan where a former employer pays pensioners out of current income. That is, the employer does not place money aside or invest funds on a regular basis to finance the pension. Obviously, an unfunded pension carries higher risk for both the pensioner and the employer; if the company goes through a difficult period, the pensioner may not have a pension for all his/her retirement while the employer has higher current liabilities.
References in periodicals archive ?
Given its approach to unfunded pension schemes, such as that of DP, Fitch views this transaction (an increase of lease adjusted net debt by EUR1.25bn) as marginally credit negative as the Fitch-expected funds from operations (FFO) lease adjusted net leverage is set to increase to around 3.2x on average for 2016-2018 from our pre-transaction expectation of 3.0x.
For unfunded pension schemes like many in Germany, Fitch's pension-adjusted leverage methodology recognises only a portion of the funded status, equal to a ratio of balance sheet debt to total assets (adjusted for funding status), assuming that the pension cash flow drain is less immediate.
Many public sector employees belong to unfunded pension schemes, whose costs are funded from current employer and employee contributions and the taxpayer.
This observation illustrates the obvious point that a comparison between funded and unfunded pension schemes depends crucially on the portfolio of assets that is acquired with contributions.
Unfunded pension schemes represent a form of insurance against such risks because the value of pensions paid to the current retired depends upon the labour income of another generation.
Unfunded pension schemes can help people insure against shocks that affect particular generations and because such schemes often involve intra-generational redistribution (because linkage is often quite low), as well as inter-generational transfers, they can help compensate for missing insurance markets.