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Pension funds

Sums of money laid aside and normally invested to provide a regualr income on retirement, or in compensation for disablement, for a remainder of a person’s life. Nearly all developed countries state pension schemes, but unlike these schemes, private pensjon schemes for which contribution receive favourable tax treatment are usually funded, i.e. placed in managed invested funds. Many private pension schemes are based upon assurance. Occupational pension schemes may be contributory or non-contributory by the employee; the benefits of private schemes are normally realted to the lenght of service of the employee and the level of his salary or contributions.

Today pension funds have considerable economic significance and provide an important flow of funds to the capital market. The pension funds of the largest corporations are often significant shareholders in other companies.

In some countries, i.e. Norway, businesses are by law reguired to set aside 2 – 8 per cent of employees yearly wage for future pension reguirements. These are placed with private pension funds, (where the bulk of saving plans amount to 2 per cent of yearly wage).

Reference: The Penguin Dictionary of Economics, 3rd edt.