Employers offer two main types of pension: defined benefit (such as final salary schemes) and defined contribution, also known as money purchase schemes.

Until recently, defined benefit schemes were far more common. They promise the member a set annual income in retirement, based on the number of years’ service and the salary when the employee left the company. For example, if your final salary is £45,000 and you have accrued 1/60th of your final salary for 20 years, you receive a pension of £15,000 (i.e. £45,000 multiplied by 20 divided by 60). This amount will typically rise in line with inflation.