Compare · Defined benefit (DB) vs Defined contribution (DC)
Defined benefit vs defined contribution pensions — what's the difference?
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
| Criterion | Defined benefit (DB) | Defined contribution (DC) |
|---|---|---|
| What you get at retirement | Promised income, usually inflation-linked | A pot you can use as you choose (drawdown, annuity, lump sums) |
| Who carries investment risk | The scheme / employer | You |
| Income formula | Accrual rate × pensionable service × pensionable salary | Pot value × annuity rate or drawdown plan |
| Transfer value | Cash Equivalent Transfer Value (CETV); advice required if over £30,000 | Pot value (no special advice rule for switching DC to DC) |
| Inflation protection | Usually built-in (CPI or RPI, often capped) | Depends on what you buy/draw |
| Death benefits | Often a spouse/dependant pension, capped % | Whole pot passes per nomination |
| Where common today | Public sector (NHS, teachers, civil service, armed forces) | 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
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).