Comparison · Pensions & Retirement · 2026/27
Final Salary Pension vs Defined Contribution Pension UK 2026/27
A final salary (defined benefit) pension guarantees an income for life. A defined contribution pension builds a pot that depends on contributions and investment performance. This 2026/27 guide compares the risk, flexibility and transfer rules between them.
Key facts -- 2026/27
- • Annual allowance (both): GBP 60,000
- • Mandatory advice threshold: GBP 30,000 CETV for DB transfers
- • Normal minimum pension age: 57 (58 from 2028)
- • Typical DB CETV multiple: ~20-30x annual pension
- • PPF safety net: for eligible DB schemes if employer becomes insolvent
- • Investment risk: employer/scheme (DB) vs member (DC)
Who Bears the Risk
The defining feature of a final salary scheme is that the employer promises a specific income and bears the investment and longevity risk of delivering it -- your pension does not fall if markets perform poorly. A defined contribution pension shifts that risk to you: the eventual pot, and the income it can generate, depends entirely on contributions made and how the underlying investments perform.
This is why giving up a final salary pension for a defined contribution transfer value is treated so cautiously -- you are trading a guaranteed outcome for one that depends on markets, and the value of that guarantee is often substantial.
Worked Example: GBP 15,000/Year Final Salary Pension
| Item | Staying in final salary scheme | Transferring to DC (illustrative) |
|---|---|---|
| Guaranteed annual income | GBP 15,000/year for life | None -- depends on drawdown/investment |
| Illustrative CETV (25x) | Not applicable | ~GBP 375,000 lump sum received |
| Investment/longevity risk | Borne by scheme | Borne by individual |
Illustrative only -- CETV multiples and outcomes vary by scheme and market conditions. Regulated advice is legally required for DB transfers over GBP 30,000. Use the pension calculator to model a defined contribution pot.
Side-by-Side Comparison
| Factor | Final salary (DB) | Defined contribution (DC) |
|---|---|---|
| Income certainty | Guaranteed | Depends on markets |
| Flexibility | Limited | High (drawdown/UFPLS) |
| Investment risk | Employer/scheme | Member |
| Death benefits | Often limited spouse/dependant pension | Remaining pot passes on flexibly |
| Employer insolvency protection | PPF safety net (may reduce benefits) | Held in own name, unaffected |