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Defined Benefit Pension Schemes
A defined pension benefit scheme, means that you have a set amount of income specified to provide for your welfare come retirement. This is based on a complex formula that includes details about your current salary, length of service, current age and more.
You will traditionally be expected to make contributions alongside those made by your employer.
Defined payment pension schemes
A defined payment / contribution pension scheme essentially does not guarantee a set amount to be set aside for your retirement. Instead, you build up an amount of money as you pay into the scheme.
You will pay a fixed amount into your pensions pot, alongside any payments made by your employer (Workplace Pensions) and this money is subsequently invested. The end sum in your pot will be determined on the amount paid in, any charges and the overall performance of the investments.
This is a government initiative that obligates all employers to enrol eligible employees into a workplace pension, provided that you are not already in one.
Employers have to pay a minimum contribution into the scheme for all their eligible workers.
This started in 2012 and is being phased in over a number of years.
To be eligible you must hit the following criteria
- Are at least 22 years old
- Have not reached state pension age
- Earn more than £10,000 per annum
- Work in the UK