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How do workplace pensions build up?
There are two main types of workplace pension. Outside the public sector, the main type is called a 'defined contribution' pension or a 'money purchase' pension (or sometimes a 'direct contribution' pension). These are often called 'DC' pensions for short. In this type of pension, the amount you will get depends mainly on how much you and your employer pay into the pension.
The second type are called salary-related, defined benefit (DB) schemes. These are usually based either on your final salary or your average salary (career average). This type of scheme makes a pensions promise – the defined benefit – to members. In other words you can work out in advance how much pension you will be paid.
Normally, this is based on your salary and how many years you have been a member of the pension scheme. There are many variations on both these broad types of pension and some hybrid schemes that take elements from both. But the important difference between them is that with defined benefit schemes your employer bears the investment risk (although if your employer goes bust, you can still lose out), and with defined contribution schemes you bear the risk.