Category: Pensions · Reviewed by Jake Leat, Associate Director · Last reviewed 2026-06-10
A defined contribution (DC) pension — also called a money purchase scheme — is a pension arrangement in which contributions are paid into an individual member’s account, invested in member-selected or default funds, and the retirement benefit depends on the accumulated fund value, investment performance and the form of decumulation chosen at retirement (annuity, drawdown, lump sums). The investment and longevity risk fall on the member, not the employer.
Category: Pensions Also known as: DC, money purchase Risk-bearer: Member Related concepts: Defined benefit pension, Group personal pension, Master trust pension, NEST National Employment Savings Trust
DC schemes are the dominant form of new private sector workplace pension in the UK. The member’s benefit is determined by (contributions in + investment return − charges) × annuity factor or drawdown decision. DC schemes include occupational DC schemes (trust-based), group personal pensions, group stakeholder pensions, and self-invested personal pensions where used in a group context.
DC schemes are governed by Part 4 of the Finance Act 2004 (registered pension scheme regime), the Pension Schemes Act 1993, the Pensions Act 1995 (statutory funding requirements do not apply to DC), the Pensions Act 2008 (auto-enrolment), the Pension Schemes Act 2017 (master trust authorisation) and the Pension Schemes Act 2021 (DC value-for-money assessment, climate risk). Occupational DC schemes are supervised by The Pensions Regulator; personal pension contracts are regulated by the FCA.
DC schemes accumulate a fund during the member’s working life. At retirement, members can take 25% as a tax-free lump sum (subject to the lump sum allowance) and use the balance for an annuity, flexi-access drawdown or uncrystallised funds pension lump sums under the freedoms introduced by the Taxation of Pensions Act 2014.
An employee aged 30 earns £40,000 and contributes 5% (£2,000) into a workplace DC scheme; the employer contributes 5% (£2,000). The total £4,000 is invested in the scheme’s default lifestyle fund. Over a 37-year career with regular salary growth, assumed annual returns of 5% and charges of 0.4%, the projected fund at age 67 might be approximately £350,000–£500,000 in today’s terms — though the actual outcome depends entirely on contribution and market performance.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
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