Pensions – definitions – Defined contribution scheme

A defined contribution scheme is built up through cash contributions from both the employer and the employee. The final fund employees stand to gain, however, is dependent on how much is contributed and on the stock market performance of their investment choices. 

This is unlike a defined benefit scheme where the final pension is based on a formula related to salary and length of service. In some defined contributions schemes, employers match the percentage contribution of salary that an employee makes. Money purchase, group personal pensions (GPPs) and stakeholder pensions are all defined contribution plans.

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