Money Purchase Pension

What is a Money Purchase Pension?

A money purchase pension is a particular kind of occupational pension scheme. This is a type of company pension which will be provided by an employer.

A money purchase pension should be contrasted with a final salary pension scheme. The basic tenet of a money purchase pension is that all the contributions that are invested will attract tax relief in the normal way. These funds will grow to a figure that will provide a pension annuity for an income in retirement. Therefore, in a money purchase pension, the important thing will be the amount that the fund grows to, based on the contributions and the growth of the fund. A money purchase pension does not enjoy the guarantee of final pension based on salary before retirement that a final salary pension provides.

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