A defined contribution pension plan is a type of retirement plan in which the employer, employee, or both make contributions on a regular basis. In this type of plan, individual accounts are set up for participants, and benefits are based on the amounts credited to these accounts. Contributions are paid into an individual account by employers and employees, and the contributions are then invested, for example in the stock market, and the returns on the investment (which may be positive or negative) are credited to the individuals account. On retirement, the members account is used to provide retirement benefits, sometimes through the purchase of an annuity which then provides a regular income.

Defined contribution plans have become widespread all over the world in recent years and are now the dominant form of plan in the private sector in many countries. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans. Unlike defined benefit (DB) pension plans, which are professionally managed and guarantee retirement income for life from the employer as an annuity, defined contribution plans have no such guarantees. Many workers, even if they have a well-diversified portfolio, are not putting enough away regularly and will find that they do not have enough funds to last through retirement.

In a defined contribution plan, both the employer and employee can contribute to the individual account. The size of the pension pot when the employee retires will depend on how long they save for, how much they pay into their pension pot, how much, if anything, their employer pays in, and how well their investments have performed. Contributions made to a defined contribution scheme by the employee and/or employer are tax-deferred.