Definition of defined contribution
A defined contribution pension scheme is one in which the company defines the contributions that it will make on behalf of members. The amount that members receive on retirement will entirely depend on the amount contributed and the investment returns over the employee's working life. If the invested fund performs badly, the employee's pension will be lower, whereas if the fund does well, the pension will be higher - the risk is with the employee. Until the last decade, most pension schemes were defined benefit (final salary) schemes. However, most of these schemes are now closed to new members, and companies are offering defined contribution schemes instead.
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