Defined contribution schemes
Defined contribution (DC) schemes are occupational pension schemes where your own contributions and your employer’s contributions are both invested and the proceeds used to buy a pension and/or other benefits at retirement. The value of the ultimate benefits payable from the DC scheme depends on the amount of contributions paid, the investment return achieved less any fees and charges, and the cost of buying the benefits.
A DC scheme has a set contribution for the employee and a set contribution for the employer. For example, in some DC schemes, the employer and the employee each contribute 5% of the member’s earnings, or 10% in total.
Some DC schemes allow members to choose the level of contribution they wish to pay, with a related employer contribution. Contributions are invested on behalf of each scheme member.
The retirement benefits for each member depend on how much money has been built up by the member’s retirement date and so it is not possible to know in advance what pension benefits a member will receive.