Defined contribution employer pension schemes are also known as which type of scheme?

Defined contribution employer pension schemes are also known as which type of scheme?

• A. Money purchase
• B. Integrated
• C. Career average
• D. Dynamised

Answer: (A)

The main idea is that the retirement benefit in defined contribution schemes is determined by the amount contributed and how that pot grows through investment, rather than a pre-set formula. This is why the term money purchase fits best: you effectively “purchase” your retirement income with the value of the fund at retirement. In a money purchase arrangement, the pension you can secure depends on how much has been saved and how the investments perform, not on salary or service history in the way that defined benefit schemes do. The other terms describe different concepts: Integrated relates to interactions with State pensions, Career average is a type of defined benefit calculation based on average earnings, and Dynamised isn’t a standard scheme type.

The main idea is that the retirement benefit in defined contribution schemes is determined by the amount contributed and how that pot grows through investment, rather than a pre-set formula. This is why the term money purchase fits best: you effectively “purchase” your retirement income with the value of the fund at retirement.

In a money purchase arrangement, the pension you can secure depends on how much has been saved and how the investments perform, not on salary or service history in the way that defined benefit schemes do. The other terms describe different concepts: Integrated relates to interactions with State pensions, Career average is a type of defined benefit calculation based on average earnings, and Dynamised isn’t a standard scheme type.