Money Purchase Pension Schemes

Money Purchase (or Defined Contribution Scheme as they're sometimes known) offers you the opportunity to save for retirement in a more conventional way than a final salary scheme.

Effectively, you contribute into a "pot" of money. This "pot" is normally administered or looked after by a large insurance company and they employ people known as Fund Managers to invest the money into different areas of the economy (collectively, everyone's "pot" may be called a fund). This investment will continue until a member reaches retirement age and an annuity (another name for a lifetime pension) will be bought for the member.

Although you may be a member of a company pension scheme, if it is not a final salary scheme it will not offer the structured and rigid calculation method showing how much pension you will receive at retirement. With a money purchase scheme the amount of pension you receive at retirement is due to the ups and downs of the current investment conditions and will therefore not offer the perceived guarantees Final Salary Schemes do.