FAQs

• Defined benefit schemes pay a promised pension based on factors, such
as salary and length of service. A sponsor, usually an employer,
guarantees the payment of the promised benefits. The pension provides
an income for life and may include a lump sum.
• Defined contribution schemes provide a pot of money for retirement
instead of a guaranteed pension. The value of the pension pot can
increase or decrease depending on factors, including investment returns
and contributions made.

Defined benefit schemes are either funded or unfunded.
• Funded schemes invest contributions from employers and employees to
pay the pension benefits the scheme has promised.
• Unfunded schemes operate on a pay-as-you-go basis. This means the
sponsor pays the promised pension benefits directly when they are due.
Many public service pension schemes in the UK are unfunded and provide
pensions paid for with current member and employer contributions, and
taxation. Private defined benefit schemes must be funded.

Defined contribution schemes can either be a workplace scheme, where both
the employer and employee make contributions, or an individual personal
pension scheme which someone has set up and contributes to themselves.
Workplace schemes can be either an occupational pension scheme or a
workplace personal pension scheme.

Regulation can vary depending on the type of pension scheme or the type of
service provided to a scheme or saver.

Boards of trustees or companies known as corporate trustees oversee trustbased pension schemes.
Trustees act separately from the employer and are
responsible for acting in the best interests of the scheme’s beneficiaries and
ensuring that the scheme runs properly.
Contract-based pension schemes are personal contracts between individual
scheme members and a pension provider. Contract-based pensions can be
either workplace and arranged by an employer, or individual pensions which
someone sets up themself, often with advice.