Schemes / Defined contribution

This type of pension scheme can also be called a ‘money purchase’ pension scheme.

Generally, members can choose what level of contributions they want to make to the scheme. Their contributions will be used to build up a personal fund that will buy them an annuity (pension) when they choose to claim their benefits. Most employers also make contributions to the scheme on behalf of its employees but this is discretionary.

The scheme assets are invested on behalf of the members with the aim of growing their personal funds.

When a member wants to claim their benefits, their personal fund is used to buy an annuity which will contribute to their future income. The value of their personal fund will be related to the performance of the scheme’s assets over the period of time that they have been contributing to the scheme. Annuity rates vary according to market forces so the member may not know what level of income they will have until they receive an annuity quotation.