Also known as defined contribution schemes, money purchase schemes are a way of building up a pension fund.
An employee and an employer can both contribute with the contribution from an employer typically being a fixed percentage of the employee’s salary. Contributions into a money purchase pension receive tax relief. On retirement the resulting pot may be turned into an income, by for example, buying an annuity or by drawing income from the invested pension assets. Since contributions into a money purchase scheme are invested into the open market, the size of the pension pot generated for a retiree is dependent on investment performance.