Thank you to Gary Fawcett (Counsel) of No, 18 Chambers for this short guide on pensions - a complex area and where the terminology used can often add to confusion!
Pensions can come from 3 sources:- 1) State (OAP, police, etc); 2) Employer; and 3) Individuals. The schemes are generally: 1) Defined contribution (DC); 2) Defined benefit (DB); or 3) A hybrid of the two. DC: Money is paid regularly into a policy and units are bought in an investment fund, providing a monetary value at retirement. DB: The terminal benefit will be an actual amount or determined according to a formula, e.g. a proportion of salary x years worked. Such schemes are: 1) State - unfunded (no fund set aside but pensions paid out of future taxes and members contributions). 2 ) Provided by employers - either funded or unfunded. Personal pension schemes: Simplest form is where regular contributions are made and units are bought in a managed fund. Stakeholder pensions are a form of defined contribution personal pension.