Money Purchase Pension Schemes

Also known as a "Defined Contribution Scheme" where your pension is based on the final value of your fund. This is determined by the performance of the underlying funds and the level of annuities at the time you retire. There is no employer undertaking to pay you a specified level of pension at retirement, as happens with a final salary scheme.

Effectively, you contribute into a "pot" of money. This "pot" is normally administered or looked after by a large insurance company and they employ people know as Fund Managers to invest the money. This investment will continue until a member reaches retirement age at which point an income for life (annuity) will be bought for the member.

Illustrated example of a Money Purchase Pension Scheme