Comparison · 2025/26
Defined Benefit vs Defined Contribution Pensions
A DB pension is a guaranteed lifetime income from your employer. A DC pension is a personal investment pot you grow and draw down. Most UK workers under 45 now have only DC — but if you have any DB benefits, understanding them is critical.
Side-by-Side
| Feature | Defined Benefit | Defined Contribution |
|---|---|---|
| Income at retirement | Guaranteed (salary × service / accrual rate) | Depends on pot & markets |
| Investment risk | Employer / scheme | You |
| Inflation protection | Linked (CPI, capped) | Only if you buy an inflation-linked annuity |
| Tax-free cash | Often 3/80ths or commutation factor | 25% of pot (within LSA £268,275) |
| Flexibility | Low — set income | High — drawdown, UFPLS, annuity |
| Spouse benefits | Built-in (usually 50%) | Whoever is nominated |
| Inheritability | Dies with you (after spouse) | Full pot inheritable |
| Annual Allowance test | 16× change in accrued pension | Gross contributions only |
| Common today? | Mostly public sector + legacy | Standard private-sector default |
Worked Example: 30 years of service on £45,000 salary
- DB at 1/60ths accrual: 30/60 × £45,000 = £22,500/year for life, plus 50% spouse benefit, indexed to inflation.
- DC pot needed to match: at 4% safe withdrawal rate that\'s a pot of ~£562,500. To buy a level annuity of £22,500 at age 65 (rates ~6%) you need ~£375,000; for an RPI-linked annuity, ~£600,000.
- A CETV (transfer value) of 25× the DB pension = £562,500 — a useful benchmark when an offer arrives.
Most savers who give up DB benefits later regret it. The guaranteed, inflation-linked, spouse-protected income is hard to replicate with a DC pot unless markets are kind and you live a long time.
Decision Framework
Keep your DB benefits if:
- You need predictable lifetime income
- You have a spouse who would rely on the survivor pension
- You\'re in a funded public-sector scheme (NHS, USS, LGPS, Civil Service)
Build DC actively if:
- You want control over investments and withdrawal timing
- You want to leave a residual pot to children or beneficiaries
- You\'re self-employed or in a private-sector scheme without DB
FAQs
What is the main difference?
A defined benefit (DB) pension promises a specific income in retirement, usually based on your salary and service years. A defined contribution (DC) pension builds an investment pot whose final value depends on contributions and market returns. DB shifts investment risk to the employer; DC shifts it to you.
Can I transfer a DB pension to a DC scheme?
Yes for most private-sector DB schemes (unfunded public-sector schemes like NHS and Teachers usually cannot transfer). Transfers of safeguarded benefits above £30,000 require advice from an FCA-authorised pension transfer specialist. You give up a guaranteed income for a Cash Equivalent Transfer Value (CETV) — typically 20–35× the annual pension.
How is each one taxed in retirement?
Both allow 25% tax-free cash (up to the £268,275 Lump Sum Allowance). The rest is taxed as income at your marginal rate. DB pays a regular taxable pension; DC offers flexi-access drawdown, UFPLS or annuity — all taxed as income beyond the 25% lump sum.
Which gives a higher income?
Depends on contributions and investment performance. A typical 1/60ths DB scheme delivers a 30-year career into roughly 50% of final salary as guaranteed income for life — equivalent in DC terms to a pot of roughly £400k–£600k buying an annuity. Most DC savers don't reach that, but DC offers control, growth potential and inheritability.
What happens to my pension when I die?
DB schemes usually pay a spouse 50% of your pension for life, often with a small children's pension. DC pots can be passed on as cash or drawdown to nominated beneficiaries — currently outside the estate for IHT (set to change from April 2027). If you die before 75, DC death benefits are typically tax-free to the beneficiary.
Calculators & Guides
Calculators for this topic
ISA Calculator
Project ISA savings growth over time with the UK £20,000 annual allowance.
Salary Sacrifice Calculator
Calculate how much tax and National Insurance you save by making salary sacrifice contributions to a pension, cycle to work scheme or EV car scheme.
Take-Home Pay Calculator
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Compound Interest Calculator
Calculate compound interest on savings and investments over any time period.
Disclaimer: Transferring out of a DB pension is irreversible. Always take regulated advice. This is information, not advice.