Currently, company pensions fall into two categories: defined benefit and defined contribution. Both help you invest money, while you’re working, for your retirement.

All employers have to offer a company pension scheme if you earn more than the National Insurance lower earnings limit if there are five or more employees where you work.  At the moment, most company pensions fall into one of two categories – defined benefit, or defined contribution.  (You might like to read about NESTs, which are coming in from 2012.)

What’s the difference between these types of pension schemes?

If your employer runs a defined benefit scheme, then the amount of money you’ll get in retirement will be based on how much you’re paid and how many years you’ve worked for the company.  You’re unlikely to find an employer who is still offering a defined benefit scheme, also known as a final salary scheme, to new employees, although some companies still run them for existing members of the scheme.

In a defined contribution scheme, the amount you’ll have at retirement will depend on how much you and your employer pay into the scheme, and how well it’s been invested on your behalf.  Employers will make regular deductions from your wages and some will add an extra amount each month.  But you can usually boost your benefits by putting extra money in, when you can afford it - these are known as additional voluntary contributions.

In all cases, you’re free to set up another personal pension outside your company’s arrangements.  An independent financial adviser (IFA) can tell you more about the type of scheme you’re in, and help you create retirement plans that could help improve your level of income in later life.

Questions you might like to ask an IFA…

What will I get from my company pension?

How could I improve my retirement income?

Are there advantages to topping up my company scheme?

Who should I speak to at my company, to find out more about my employers pension scheme?