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Unfunded schemes

Some pension schemes are unfunded. These generally relate to the non-commercial public sector, such as the civil service, GardaĆ­, teachers etc. where the ability to pay pensions in the future is essentially underwritten by the government.

In unfunded schemes, no contributions are made to the scheme in advance and no investment fund is built up. Instead, the benefits are paid out by the employer when they fall due, alongside the salaries of current employees. This type of arrangement is called ‘pay as you go’.