A money purchase scheme is a type of defined contribution
arrangement. It is set up by an employer to provide income in
retirement for its employees.
Although the employer is responsible for sponsoring the scheme,
it is run by a board of trustees (with the exception of most public sector schemes). The
Trustees are responsible for paying retirement and death
benefits.
The amount of pension payable from a money purchase scheme is
dependent upon:
- the amount of money paid into the scheme (by the member and the
employer);
- how well the investment funds perform; and
- the 'annuity rate' at the date of retirement. An annuity rate
is the factor used to convert the 'pot of money' into a
pension.
