Defined Contribution (DC): In a DC scheme, both the employer and employee contribute a regular percentage of the employee’s salary to an individual account specifically for the employee. The final benefit amount depends on the contributions made and the investment returns achieved.

Defined Benefit (DB): In a DB scheme, employees are promised a specific level of retirement benefit, calculated through a formula typically based on salary and years of service. Employers bear the funding risk and are responsible for ensuring sufficient money is available to meet future obligations.

Funded: In a funded pension scheme, contributions from employers and employees are invested on a regular basis separately to the company’s assets. The resulting fund is used to provide benefits upon retirement. This contrasts with ‘unfunded’ systems where no distinct pool of assets exists.

Unfunded: In an unfunded scheme, there is no separate pool of assets. Retirement benefits are paid directly by the employer or through a government fund, often financed by the company’s current assets or by current contributions from active employees or other sources of revenue.