You are very unlikely to be offered a choice!
Salary related, defined benefit or final salary schemes make a pensions promise – the defined benefit - to members. In other words you can work out how much pension you will be paid in advance. Normally this is based on your salary when you retire and how many years you have been a member of the pension scheme. This particular case is known as a final-salary scheme, but other ways of working out your pension are used by some schemes such as your average salary over a number of years.
With money purchase or defined contribution schemes the amount of pension you will get cannot be known in advance as it depends on:
The basic difference between salary related pensions and money purchase schemes is that with a salary related scheme you can tell in advance what pension you will receive, while a money purchase scheme pension will depend on factors that can't be foretold in advance such as the performance of scheme investments and annuity rates.
Another way to look at this is that with salary related schemes the employer bears the risk. You have been made a pensions promise, and it is up to the employer to make good that promise by paying enough into the scheme. The downside is that some employers default on their pensions promise, particularly if they go bust. Many people have lost a great deal from this. But the government has now introduced a Pensions Protection Fund that will help people who lose in this way by paying most of their pension.
With a money purchase scheme you bear the investment risk. If investments do badly or annuity rates fall, then you will end up with a lower pension. You may also have to pay management charges that over time can make a real difference to your pension income. But because you build up your own pensions pot, and your pension does not depend on future employer contributions to meet a promise, it is safer if your employer goes bust.
This does not mean that a salary related scheme will always pay a better pension, or that salary related pension schemes are always better. For the same contribution rates over some periods a good money purchase scheme may provide a better pension than a typical final salary scheme.
There are good and bad examples of both types of pension (and many people who would be grateful to have access to either!).
One crude rule of thumb in comparing schemes is to find out how much the employer puts in. Many employers have replaced salary related schemes with money purchase schemes in recent years, but have also cut back the employer contribution at the same time.
On the whole salary related pension schemes are likely to pay a better pension than money purchase schemes, but it does not mean that every salary related scheme is better than every money purchase scheme.
