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From what I understand a DC(defined contribution) plan is a pension plan where you make contributions, then invest the money, and the pension you get depends on the rate of return.

I have also read that a unit-linked plan is both a pension plan, and an investment plan?

Also I saw that unit-linked is more than life-insurance. Is it also for example casulty insurance? And when it is life-insurance, is it the same as a DC-plan?

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    What country are you asking about?
    – littleadv
    Commented Jun 10 at 6:48

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The employee never explicitly puts money into a pension. You may be thinking of 401k and related plans which have largely replaced pensions, but are not pensions.

Defined contribution pension: the company (not you) sets aside money (usually a percentage of your salary), invests it, and if you stay with the company long enough to be vested in the pension plan the value of those investments becomes available at a later date, usually retirement. If those investments take a dip before you need to cash them out, you may lose some if that value.

This is as opposed to a defined benefit pension, which was the even older form, in which the company simply promised you a pension according to a specific formula, and the company took all the risk that you might retire during a period when the company wasn't doing well.

Pensions can't be taken from one company to another, and were designed for a time when companies wanted employees to stay with them for their whole career. In the US, 401k plans or equivalents are now more common both because they put all the risk in the employee's hands, and because it can move with you when you change companies so manglement doesn't feel so bad about paying people off.

Of course the latter, plus the ability to actively guide how the money is invested rather than the company making that choice for you, can be seen as 401k-or-equivalent advantages for employees.

(I keep saying "or equivalent" because in some job sectors, such as education, a very similar retirement savings plan exist but is defined in a separate section of the tax codes because it was passed into law separately.)

I have no idea what a "unit-linked plan" might be. But I'm only (somewhat) familiar with the US systems. It sounds like that may actually be closer to a whole-life insurance-plus-investment product, which is generally inferior to buying insurance and investing separately.

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  • Many pension plans require employee contributions (in the form of payroll deductions)- it's just that those contributions are no longer associated with that particular employee after they're made. Commented Jul 12 at 22:54

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