Defined Contribution Scheme

GOV.UK's guidance on private pension types describes 'defined contribution' as 'a pension pot based on how much is paid in', and explains that defined contribution pension schemes 'are usually either personal or stakeholder pensions' that 'are sometimes called "money purchase" pension schemes.' They can be workplace pensions arranged by an employer or private pensions arranged individually.

Unlike a defined benefit scheme, the eventual pension depends on investment performance rather than a promised formula. GOV.UK states that 'Money paid in by you or your employer is put into investments (such as shares) by the pension provider,' and that 'The value of your pension pot can go up or down depending on how the investments perform.' What a member ultimately gets depends on 'how much was paid in', 'how well the investments have done', and 'how you decide to take the money, for example as regular payments, a lump sum or smaller sums.' As with defined benefit schemes, a member can usually take up to 25% of the pension pot as a tax-free lump sum, and the pension provider 'usually takes a small percentage as a management fee.'