Defined Contribution Pensions are by far the most common type of pension.
What is a defined contribution pension?
Other terms used to describe this type of pension scheme are money purchase pension, stakeholder pension or simply a personal pension. Nowadays, a defined contribution pension is one of the most popular type of pension that can be arranged by yourself, your employer, or by the two parties together. The value of the defined contribution pension is determined by the amount of money put into it, as well as how your investments perform over time.
Different types of defined contribution pensions
SIPP
QROPS
SSAS (Small Self Administered Schemes)
Executive pension plan
Group personal pension plan
Stakeholder pension
Master trust pension (e.g. NEST, NOW pension, the People’s Pension)Master trust pension (e.g. NEST, NOW pension, the People’s Pension)
Adding money to your defined contribution pension
Most people believe that a defined contribution pension is not that different from a savings account with some great tax benefits.
From the moment you or your employer start adding money into your pension fund, your pension provider will start claiming tax relief in your name and add it to your pension pot. You can also decide where you want your money invested, subject to certain limitations and the range of options the pension provider offers. The final amount that will be accumulated into your pension fund depends on the following factors:
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Paid Contributions – Personal, Employee and Employer.
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Tax relief.
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Investment Performance.
headway wealth Pension Calculator
You can also use our pension savings calculator to figure out your projected retirement income, based on how much money is in your pension pot and how much you’re contributing.
Withdrawing money from your defined contribution pension plan
Once you reach 55, you have several options in terms of what you can do with your defined contribution pension. You can take up to 25% of the fund as a tax free lump sum (often referred to as a Pension Commencement Lump Sum – PCLS) and then leave the rest invested, start drawing a regular income, take ad-hoc lump sums (taxable) or purchase an annuity.
Need help with your defined contribution pension?
Our team of qualified, regulated financial advisers can answer any questions you might have around your defined contribution pension.
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