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How Does a Defined Contribution Pension Plan Work?
In another recent blog post, we discussed defined benefit pensions and how they work. I promised that we would also cover Defined Contribution (DC) plans. These are more common and are more flexible than Defined Benefit (DB) Schemes but can also be seen as riskier as the risk of them sits with the employee, i.e. you.
It is maybe worth refreshing yourself on DB pensions before reading below, but both should help you understand your pension. It is important to say this blog is correct at the time of writing and based on the UK financial system, although there are many similarities internationally. So what do we need to know about DC schemes?
Defined contribution pensions are a type of retirement savings plan that employers and employees contribute to
A defined contribution pension is a retirement savings plan in which both employers and employees can contribute money. The contributions are typically invested in stocks, bonds, or other assets, and the funds are used to provide retirees with income during their retirement years.
One advantage of defined contribution pensions is that they offer flexibility; employees can choose how much to contribute. Additionally, defined contribution plans often allow employees…
