Defined contribution schemes are based on the pension premiums which are invested to build up a fund. Members carry the investment risk throughout this build-up. The fund which has accumulated when the member reaches retirement age is used to buy pension rights. The main benefit of a defined contribution scheme for employers is that pension costs can be accurately foreseen. Another type of pension is a defined benefit scheme in which the final pension benefits are allocated depending on salary and years of service. Examples of defined benefit plans are final salary and average salary schemes, which, as shown in the chart, account for around 20% of active members in direct pension schemes.
Featured Statistic: 50%
Date 28 December 2006
Some 50% of active members in direct pension schemes are in a defined contribution plan compared to just 3% of pension fund members.