What is the key difference between DC and DB pensions?

DB (Defined Benefit): employer guarantees a specific income at retirement (e.g., 1/60th of final salary per year of service). DC (Defined Contribution): you and employer contribute, but the retirement income depends on contributions and investment performance.

Who bears the investment risk in each type?

DB: employer bears investment risk. If the pension fund performs poorly, the employer must make good the shortfall. DC: employee bears investment risk. The retirement income depends entirely on market performance of the accumulated fund.

How valuable is a DB pension?

DB pensions are extremely valuable. A £20,000/year DB pension may have a transfer value of £400,000-£600,000 (20-30x multiple). This implicit value is often not appreciated by employees who see only the annual accrual rate.

What is a career average revalued earnings (CARE) pension?

Many newer DB schemes use CARE: annual accrual based on current year salary (not final salary), revalued by a measure (CPI, CPI+0.25%, etc.) until retirement. Less generous than final salary but provides DB certainty and longevity insurance.

Should I transfer out of a DB pension?

In the UK, DB transfer values above £30,000 require regulated financial advice. Transfer to DC: gains investment flexibility and death benefit but loses guaranteed income and employer bears risk. Generally only advisable in specific circumstances (poor health, no survivor benefit need).

Defined Contribution vs Defined Benefit Pension Comparison Calculator

Compare defined contribution (DC) and defined benefit (DB) pension structures. DC: investment risk on employee, flexible but uncertain income. DB: guaranteed income but employer bears investment risk. Value analysis and break-even life expectancy.

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Frequently Asked Questions

What is the key difference between DC and DB pensions?

Who bears the investment risk in each type?

How valuable is a DB pension?

What is a career average revalued earnings (CARE) pension?

Should I transfer out of a DB pension?