A defined contribution, or DC, scheme is one where the individual and (normally) the employer make contributions of a percentage of pay to the individual's personal pension 'pot'. At retirement, this 'pot' is used to purchase a retirement pension known as an 'annuity' (this is an income stream which provides a pension to the individual and, if the individual chooses, also to a partner payable if the member pre-deceases their partner and - where applicable - their dependant children).

These schemes are problematic because they do not offer a defined level of income in retirement. Retirement income will be dependent on two variables:

• The investment performance of the 'pot' over the period in which they are invested, i.e. up to retirement
• The price of annuities at the point at which it is purchased (and the decisions as to which type of annuity is purchased).

These two variables can swing quite wildly over quite short periods of time, so DC schemes cause uncertainty. Employers like them because the employer's contribution is fixed and known and the 'risk' is entirely passed to the individual scheme member.

It is, however, possible for a DC scheme to provide decent (if precisely uncertain) pensions. Provided the level of contribution to the scheme over time is fairly high - and in total roughly the same as the level of contributions to, say, the BTPS - it would be possible, with a reasonable degree of certainty, to predict that the scheme would generate a broadly comparable pension to the BTPS.