Defined Contribution Funds

With this retirement plan, the company sets aside a certain amount each year for the benefit of the employee. These funds are known as "money purchase" or "fixed contribution" funds.
 

The rules of the fund specify the contributions to be paid by the employer and member but do not guarantee the retirement benefit. There are restrictions as to when and how you can withdraw these funds without penalties. And there is also no way of knowing how much the plan will ultimately give the employee upon retiring. The amount contributed is fixed, but the benefit is not.

The benefits are dependent on the following factors:

• The value of contributions paid by the employer and the member
• The performance of the underlying investments in the fund
• Administration costs
• Allocation of withdrawal credits when other members leave
• Prevailing annuity rates at the time the pension is taken

Advantages:

• You could have the advantage of a higher pension at retirement as a result of better investment performance
• If you change employment you will be entitled to take the full benefit
• Wider choice of investments

Disadvantages:

• The member takes the full investment risk
• There are no guarantees that your pension will keep up with inflation
• Members have no idea what their ultimate pension will be.