Defined contribution scheme

A defined contribution scheme confers the right to a pension contribution rather than a fixed pension payment as under a final pay or average pay scheme. Under a defined contribution scheme, the ultimate pension benefits depend on the amount of the contributions and the yield that is achieved. There is no guarantee other than a guaranteed contribution. A defined contribution scheme is common when pension providers are insurance companies.

The annual (gross) premium is determined by multiplying the (maximum) age-dependent percentage by the pensionable base for that year (see table hereafter). Besides this premium the employer has to pay the costs of risk insurances and administration. If the pension capital produces a yield of 4%, a defined contribution scheme is in principle equivalent to an average pay scheme. There is also a table based on a yield of 3% with higher maximum percentages, for the use of which additional rules apply.

Besides the premium tables mentioned herefore it is also possible to determine a flat rate premium. The flat rate premium cannot exceed the maximum premium for the youngest employee, therefore (considered the youngest possible participating employee being 21) with a maximum of 4.4% or 7.7%.