What is a Defined Contribution Scheme?

In a defined contribution scheme, your retirement income is made up of a percentage of your salary that you choose to put into the scheme. This must be a minimum of 5% of your salary, and any contributions are deducted from your taxable income. Your employer must also supplement this contribution, at a minimum rate of 3%, but many employers offer more generous schemes - often matching your contribution up to a certain percentage.

This money is then invested in your chosen fund - or otherwise the scheme's default fund. This money gains interest over time and will continue to grow from this interest, and from further contributions.

You are able to access the fund upon retirement, with many choosing to purchase a lifetime annuity. This is a product that guarantees you a yearly income until death, and means you don't have to worry about investing your money and planning your finances as much.

One important point to note about defined contribution schemes is that your capital is at risk. If the market performs badly, or you make risky investment decisions, this may impact the amount of money you have access to at retirement.

The below projection assumes a more generous contribution - this is 10% from you, and 10% from your employer. With a retirement age of 68, we have adjusted your lifetime annuity value based on our inflation assumption. Annuity rates have been taken as of October 2025. Other key assumptions can be viewed on our homepage. 

Your Defined Contribution (Higher) Projection

Upon retiring at 68 years old, you could purchase an annuity equivalent to:

£32,600

in today's money.

It is important to note that you can receive this annuity on top of your basic state pension allowance, which is currently around £12,000 a year, however income tax will still apply. Tax is not paid on purchasing a lifetime annuity.