what is pension fund

A pension fund is a program, fund, or scheme that provides retirement income. Pension funds are typically funded by contributions from employers and occasionally from employees. They are managed by professional fund managers on behalf of a company and its employees, and they can control vast amounts of capital, making them among the largest institutional investors in many nations. Pension funds can be classified as open or closed. Open pension funds support at least one pension plan with no restriction on membership, while closed pension funds support only pension plans that are limited to certain employees. Pension funds can be further classified into defined benefit and defined contribution schemes. In a defined benefit policy, the future payment to the policyholder is predetermined, or has at least a guaranteed minimum amount. By contrast, in a defined contribution scheme, the regular contribution paid to the scheme is fixed, and the value of the policyholder’s pension wealth depends on the performance of the pension funds’ investments. Pension funds are the major investors in listed and unlisted securities, and they are the largest institutional investors ahead of mutual funds, insurance companies, currency reserves, sovereign wealth funds, hedge funds, or private equity.