In a defined contribution (DC) pension, you build up pension savings based on:
- payments from you (and usually your workplace, if it’s a workplace pension),
- tax relief from the government, if you qualify, and
- how your investments do.
To qualify for tax relief you need to earn enough to pay income tax. If you don’t you’ll get a tax top-up from the government – but this will be paid into your bank account, not your pension savings.
When you retire, you use the money you’ve built up to give yourself a retirement income. But, unlike a defined benefit (DB) pension, the amount of income you’ll get isn’t guaranteed.
Most modern pensions are DC.