Defined benefit vs defined contribution pensions — what's the difference?
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In short. A defined benefit (DB) pension pays a guaranteed income based on your salary and service. A defined contribution (DC) pension builds a pot you invest yourself, and you choose how to take income at retirement.
DB schemes were common in the public sector and older private sector employers. Most new workplace pensions today are DC. The fundamental difference is who carries the investment risk: in DB it's the scheme; in DC it's you.
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Side by side
What you get at retirement
Defined benefit (DB)
Promised income, usually inflation-linked
Defined contribution (DC)
A pot you can use as you choose (drawdown, annuity, lump sums)
Who carries investment risk
Defined benefit (DB)
The scheme / employer
Defined contribution (DC)
You
Income formula
Defined benefit (DB)
Accrual rate × pensionable service × pensionable salary
Defined contribution (DC)
Pot value × annuity rate or drawdown plan
Transfer value
Defined benefit (DB)
Cash Equivalent Transfer Value (CETV); advice required if over £30,000
Defined contribution (DC)
Pot value (no special advice rule for switching DC to DC)
Inflation protection
Defined benefit (DB)
Usually built-in (CPI or RPI, often capped)
Defined contribution (DC)
Depends on what you buy/draw
Death benefits
Defined benefit (DB)
Often a spouse/dependant pension, capped %
Defined contribution (DC)
Whole pot passes per nomination
Where common today
Defined benefit (DB)
Public sector (NHS, teachers, civil service, armed forces)
Defined contribution (DC)
Most private-sector workplace pensions and personal pensions
When Defined benefit (DB) usually wins
- You value a guaranteed inflation-linked income
- You don't want to manage investment decisions in retirement
- You're in the public sector or a long-tenured private DB scheme
- You want a dependant's pension built in
When Defined contribution (DC) usually wins
- You want flexibility over how and when you take income
- You want to leave the remainder to family
- You want full investment choice and consolidation
- You're comfortable making decisions about drawdown levels
Related quick answers
FAQ
- Why is regulated advice required to transfer a DB pension?
- Because you're giving up a guaranteed income for a pot whose value can fall. UK law requires regulated financial advice for any DB transfer with a value over £30,000.
- Can I have both?
- Yes — many people have a DB pension from earlier employment and a DC pension from later employers and personal contributions.
- Is the State Pension a DB or DC scheme?
- Neither, technically — it's a pay-as-you-go state benefit based on your National Insurance record. It behaves like a DB income (guaranteed, inflation-linked under the triple lock).