Defined Benefit & Defined Contribution Schemes
These are also known respectively as final salary and money purchase schemes. They are both offered by employers and come under occupational pension rules.
The defined benefit scheme offers the member a pension based on their final salary and number of year's service. The scheme will have an accrual rate (often 1/60th or 1/80th) and therefore, for each year's service, you would receive a pension of say 1/60th or 1/80th of your final salary.
A defined contribution scheme is where your employer pays a percentage of your salary into the scheme each year. The final pension you receive will depend on the amount paid in and the investment returns.
Both types of scheme may require the employee to contribute.
Under occupational scheme rules the Inland Revenue restricts the maximum pension you can gain to 2/3rds of final remuneration.
