Two fundamentally different promises
A Defined Benefit (DB) pension promises a specific income in retirement, usually based on your salary and years of service — the risk of investment performance sits with the employer or scheme. A Defined Contribution (DC) pension makes no such promise: you and your employer pay into a pot, it's invested, and what you get depends entirely on how much was paid in and how the investments performed — the risk sits with you.
| Defined Benefit (DB) | Defined Contribution (DC) | |
|---|---|---|
| What's promised | A specific income, often linked to salary and years of service | Whatever the pot is worth at retirement |
| Investment risk | Employer/scheme bears it | You bear it |
| Common today | Mostly public sector and older private schemes | The default for most private-sector employees since auto-enrolment |
| Access | A pension income for life, sometimes with a tax-free lump sum option | Flexible — drawdown, annuity, lump sums, or a mix |
Why DB schemes have largely disappeared
DB schemes are expensive and risky for employers to run — they're on the hook if investment returns disappoint or people live longer than expected. Most private-sector employers closed their DB schemes to new members years ago in favour of DC schemes, which shift that risk to employees. DB pensions still exist widely in the public sector (teachers, NHS staff, civil servants, and similar).
If you have a DB pension
DB pensions are generally very valuable and give up guarantees that are expensive to replace elsewhere — transferring a DB pension to a DC arrangement is a serious, largely irreversible decision. Transfers above a certain value legally require regulated financial advice before they can proceed, precisely because so many people have been talked into giving up valuable guarantees they didn't fully understand.
If you have a DC pension
Your outcome depends on contribution levels, investment choices, charges and how markets perform over your working life — all things at least partly within your control. Checking your fund choices, keeping charges reasonable, and reviewing contribution levels periodically all make a meaningful difference to your eventual pot.
Key takeaways
- DB pensions guarantee an income; DC pensions depend on contributions and investment performance.
- DB schemes are now rare outside the public sector.
- Transferring out of a DB scheme gives up valuable guarantees and requires advice above certain values.
- With a DC pension, your own choices about contributions and investments matter enormously.