Defined benefit and defined contribution pension - what is the difference?

There are two types of occupational pension: defined benefit and defined contribution. Defined contribution pension means that the amount the employer sets aside for occupational pension is fixed at a certain percentage of the salary. This means that the employee's pension contribution is affected by changes in salary. A person with a defined contribution pension can decide how the capital is managed - in a traditional insurance policy or a unit-linked policy.

Unlike a defined contribution pension, a defined benefit pension means that the employee is guaranteed a certain percentage of the final salary when he or she retires. In these cases, there is no possibility for the employee to choose how the money is invested and managed.