What is Work-based and Personal Pension?

What is a work-based pension?

A work-based pension scheme is set up by an employer to provide a way for employees to save for their retirement. Both the employer and the employee may contribute to the scheme. The employee’s contributions are usually collected directly from their salary or wages.

Types of work-based pension scheme
There are three main types of work-based pension scheme:

Defined benefit (also known as DB, final salary or salary-related) – benefits are calculated based on how much a member earns and how long they are an employed member of the pension scheme

Defined contribution (also known as DC or money purchase) – benefits are based on how much the member and employer pay into the scheme, and also on the performance of the investments made with that money. The income the member gets at retirement will depend on the amount of money in their fund, the age at which they retire and also the cost of buying a pension (the annuity rate) at the time

Hybrid – a mixture of DB and DC

What is a personal pension?

This is a pension policy that’s taken out through a pension company, into which you pay contributions and will at retirement provide some or all of your pension income. These are invested in funds, which you can choose according to your attitude to risk and plans for the future. A personal pension is set up on a defined contribution basis.