Let's Talk Money: What is a 'defined contribution' pension plan?

Hello, I'm Natalie Davison, Head of Advice and Guidance Operations at Standard Life.

Every day, I work with teams that talk to our customers, supporting you in planning for the future that you want.

Today, I'm answering a common question we get asked, "What is a defined contribution pension plan?"

Defined contribution, sometimes known as money purchase, plans are one of the most common types of pension plan.

You pay into the plan and your employer usually will too.

You can get tax benefits on the money you pay in, which is like a helping hand from the government.

Money paid into the plan is invested, and your investments may be chosen for you or you can pick your own.

How much you get back from the plan depends on how much was paid in and how your investments have performed.

Please remember, investments can go down as well as up and you could get back less than what was paid in.

It's worth checking regularly that you're comfortable with how much you are paying in and where your money is invested.

You can take your money from age 55. However, this will rise to age 57 from April 2028.

There are different ways you can do this, and you can normally take up to 25% of your plan tax free.

So, there you go, a quick overview of defined contribution pension plans.