Glossary · UK
What is Defined Benefit vs Defined Contribution?
Two main pension types: DB pays a guaranteed income based on salary and service; DC builds a pot you invest and draw from.
Full Definition
A Defined Benefit (DB) pension — often called «final salary» or «career average» — pays a guaranteed income in retirement worked out from your salary, years of service and an accrual rate (e.g. 1/60th). The employer carries the investment risk. Common in the public sector (NHS, Teachers, USS, Civil Service). A Defined Contribution (DC) pension is a pot of money you and your employer pay into, invested in funds you choose. At retirement you can take 25% tax-free (capped by the £268,275 Lump Sum Allowance), then drawdown, buy an annuity or take lump sums — all taxable as income. Almost all new workplace and personal pensions, including SIPPs, are DC.