Pension Transfers & Defined Benefit Pensions UK Defined Benefit vs Defined Contribution Pension Understanding the difference between DB and DC pensions. Final salary vs money purchase schemes, and what each means for your retirement.
By James Whitfield
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23 March 2026
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Last reviewed: 16 September 2026
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4 min read Understanding the two main types of workplace pension and what they mean for your retirement.
For the wider cluster covering workplace pensions, auto-enrolment and public-sector schemes, use the main Workplace Pensions hub .
Quick Comparison Feature Defined Benefit (DB) Defined Contribution (DC) Retirement income Guaranteed Depends on pot size Investment risk Employer bears You bear Final amount Known formula Unknown until retirement Common in Public sector Private sector Also called Final salary, career average Money purchase
Defined Benefit Pensions How They Work Element Details Promise Specific income in retirement Calculation Based on formula Factors Salary × years × accrual rate Investment Employer manages Risk Lies with employer
Types of DB Pension Type How It’s Calculated Final salary Based on leaving salary Career average Based on average salary CARE Career Average Revalued Earnings
DB Calculation Example Final Salary Scheme Calculation Final salary £50,000 Years in scheme 20 Accrual rate 1/60th Annual pension £50,000 × 20 × 1/60 = £16,667/year
Common Accrual Rates Rate Per Year of Service 1/60th 1.67% of salary 1/80th 1.25% of salary 1/57th 1.75% of salary (Teachers’ Pension)
DB Benefits Benefit Details Guaranteed income For life Usually inflation-linked CPI/RPI increases No investment decisions For you Often spouse pension Included Predictable Know what you’ll get
DB Drawbacks Drawback Details Less flexible Set income Employer dependent If they fail Can’t vary income Tax planning harder Tied to one employer To maximise benefit
Defined Contribution Pensions How They Work Element Details Contributions You and employer pay in Investment Money invested in funds Growth Depends on performance Final pot Contributions + growth Risk You bear it
DC Calculation What Determines Pot Impact Your contributions More = bigger pot Employer contributions More = bigger pot Investment returns Can grow or shrink Charges Reduce final pot Years contributing More time = growth
DC Example Monthly Contributions Over 30 Years You: £200 Employer: £150 Total: £350/month Assuming 5% growth Estimated pot ~£290,000
DC Benefits Benefit Details Portable Move jobs easily Flexible access Drawdown options Tax planning Control income Investment choice Some control Inheritance Pass on pot
DC Drawbacks Drawback Details Investment risk On you Unknown income Until retirement Longevity risk Might outlive pot Requires decisions Ongoing
Side-by-Side Comparison Income Certainty Scenario DB DC Good markets Same income Higher pot Bad markets Same income Lower pot Live to 100 Same income Pot may run out
Flexibility Feature DB DC Vary income No Yes Tax planning Limited Better Leave inheritance Limited Full pot Access before death Set income Flexible drawdown
Employer Contributions Type Typical Contribution DB (public sector) 20-30% of salary DC (private sector) 3-10% of salary
Which Do You Have? Signs of DB Pension Indicator Called “final salary” Called “career average” Statement shows projected annual income Public sector employment Long-established employer
Signs of DC Pension Indicator Shows pot value Investment fund choices Called “money purchase” Auto-enrolment pension Most modern workplace pensions
Public Sector Pensions Main Schemes Sector Scheme Type NHS NHS Pension DB (CARE) Teachers Teachers’ Pension DB (CARE) Civil Service Civil Service Pension DB (CARE) Local Government LGPS DB (CARE) Armed Forces AFPS DB
Typical Terms Feature Public Sector DB Accrual 1/54th to 1/57th Retirement age State Pension Age Inflation linking Yes (CPI) Spouse pension Usually 50% Lump sum Option to commute
Private Sector Reality Changes Over Time Era Common Pension Type Pre-1990s DB (final salary) 1990s-2000s DB closing to new members 2012 onwards DC (auto-enrolment) Now Almost all DC
Why DB Disappeared Reason Impact People living longer More expensive Investment risk Companies can’t bear Accounting rules DB liabilities on books Cost DB much more expensive
If You Have Both Managing Multiple Pensions Strategy Keep track Of all pensions Value DB higher Than pot size suggests Consider DB value When planning DC contributions Don’t transfer DB Without advice
Valuing a DB Pension Rule of Thumb Calculation Multiply annual pension By 20 £15,000/year DB ≈ £300,000 DC equivalent
Transfers DB to DC Transfer Consideration Details Almost never advisable For most people Advice required Over £30,000 Giving up Guaranteed income Scam risk High in this area Exceptions Very specific circumstances
When Transfer Might Work Rare Situation Why Terminal illness Access money now Very low transfer value Relatively Poor employer/scheme health Insolvency risk High value + short life expectancy Get advice
Summary Question DB DC How much will I get? Formula tells you Depends on pot Who bears risk? Employer You Flexibility Low High Generally better? Yes (if available) Standard now Your responsibility Stay in scheme Contribute well, invest wisely
Key Takeaways DB is valuable Don’t transfer lightly DC needs attention Contributions and investments Know what you have Check pension type Public sector Likely DB (keep it) Private sector Likely DC (maximise it)