{"id":428406,"date":"2021-12-17T13:33:03","date_gmt":"2021-12-17T13:33:03","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=428406"},"modified":"2026-02-16T10:56:33","modified_gmt":"2026-02-16T10:56:33","slug":"defined-contribution-pension-schemes","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/pensions\/defined-contribution-pension-schemes","title":{"rendered":"Defined contribution pension schemes"},"content":{"rendered":"

If you\u2019ve recently joined a new employer\u2019s pension scheme, chances are it\u2019s a defined contribution scheme. And if you have a personal pension<\/a>, it definitely is. Unlike defined benefit pensions, which guarantee a certain level of income for life, the ultimate value of defined contribution pension schemes is based on the performance of investments held. While they\u2019re not such a sure thing as defined benefit pensions, they\u2019re still a good way to save for retirement, thanks to a combination of tax breaks and, often, employer contributions. Read on to find out why it\u2019s usually well worth opening a defined contribution pension.<\/p>

What is a defined contribution pension scheme?<\/h3>

A defined contribution pension scheme is a type of pension where you know the amount being paid in \u2013 hence your contribution being \u201cdefined\u201d. But the amount you\u2019ll have built up when you retire will depend on the performance of your pension investments. This type of pension is also known as a \u201cmoney purchase\u201d scheme. Defined contribution schemes are different from defined benefit schemes, which promise a certain level of regular income.<\/p>

How do defined contribution pension schemes work?<\/h3>

With defined contribution pensions, the money you pay into the scheme over time is invested. The idea is that the value of your investments will grow so that ultimately the amount in your pension (known as your pension pot) will be enough to provide a decent retirement income.<\/p>

Most people make regular payments into their defined contribution pension. If you have a workplace pension, there will be a minimum amount set by your employer. You may also be able to make additional payments above this, either on a regular or ad hoc basis. Your employer will almost always contribute to your pension as well.<\/p>

If you have a personal defined contribution pension, you can also choose to pay in a regular amount. You may also be able to contribute on a less regular basis. This approach can be useful for self-employed people with a less consistent income.<\/p>

When you retire, you can start taking out the money in a defined contribution pot. Money can usually be taken either as lump sums or a regular income.<\/p>

What other types of pension are there?<\/h3>

There are 2 other main types of pension.<\/p>