What types of pension scheme are there?
There are broadly two types of occupational pension schemes sponsored by the employer; Defined Benefit (DB) and Defined Contribution (DC).
Defined Benefit (DB) Schemes
These schemes offer a full promise about what a member’s income will be from their pension savings. They are also known as final salary schemes and include Career Average Salary Schemes (CARE).
Defined Contribution (DC) Schemes
These schemes do not offer any promise about the income a member may receive from their pension savings. They are also known as money purchase schemes and include Small Self Administered Schemes (SSASs) and Stakeholder schemes.
Sometimes categorisation is not straightforward:
There are two other types of schemes that are not classed as Occupational Pension Schemes and they both operate on a DC basis:
Some employers sponsor workplace schemes which are a collection of personal pensions – these are called Group Personal Pensions (GPPs).Legislation governing pension schemes permits the options available to a member in all schemes to be very similar. It is the individual scheme rules laid down by the trustees that differ.
However, SIPPs and SSASs in particular do have a wider scope of investment than other DC schemes.
