What types of workplace pension schemes are there?

There are two main types of workplace pension. 'Money purchase' pensions (also known as defined contribution or DC schemes) are a kind of savings scheme. You build up your own savings (often called your 'pension pot') made up of your contributions, tax rebates and usually an employer's contribution. The pension you receive will depend mainly on how much you and your employer contribute.

Salary-related pensions (also known as defined benefit or DB schemes) pay a pension based on how long you work for the employer that runs the scheme and the salary that you are paid. Final salary schemes use the salary you are earning when you stop being paid by your employer to calculate your pension.

This is the commonest type of salary-related scheme, but other schemes can use your average salary while you worked for the employer or some other calculation. Employers who provide salary-related schemes may also provide money purchase schemes, such as AVCs and stakeholder pensions, for staff who want to save more.

There are many variations of both these broad types of pension and some hybrid schemes that take elements from both.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.

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