Defined Benefit vs Defined Contribution: What's the Difference?
Almost every UK pension is one of two things. A defined benefit pension promises you an income for life, worked out from your pay and your years of service. A defined contribution pension builds you a pot of money, worth whatever it is worth on the day you retire. The names are dull and the difference is enormous, because it decides who carries the risk if investments do badly or you live longer than expected.
The difference in one line
In a defined benefit scheme, your employer promises the outcome and has to find the money to pay for it. In a defined contribution scheme, your employer promises the input and what you end up with is your problem. That single swap explains almost everything else about how the two behave.
| Defined benefit (DB) | Defined contribution (DC) | |
|---|---|---|
| What you're promised | A yearly income for life | A pot of money |
| Also called | Final salary, career average, CARE | Money purchase, personal pension, SIPP |
| Who takes the investment risk | The employer or scheme | You |
| Who takes the risk of living a long time | The scheme | You |
| Statement shows | A pension of £X a year | A balance of £X |
| If the employer goes bust | Pension Protection Fund steps in | Your pot is yours already |
| Passing it on | Usually a reduced spouse's pension | The whole remaining pot |
How a defined benefit pension is worked out
Three numbers do the work: your pensionable pay, your years in the scheme, and the accrual rate, which is the fraction of pay you earn as pension for each year served. A 1/60 scheme gives you a sixtieth of your pay for every year.
Final salary. Priya spent 30 years in a 1/60 final salary scheme and finishes on £45,000. Her pension is 30 ÷ 60 × £45,000 = £22,500 a year, payable for life and rising most years with inflation.
Final salary schemes are the older design and are now rare for new saving. The commoner design today is career average revalued earnings, usually shortened to CARE. Instead of one big calculation at the end, each year builds its own slice of pension based on that year's pay, and the slices are increased every year until you retire. The main public service schemes all work this way: the Local Government Pension Scheme builds pension at 1/49 of your pay each year, the NHS 2015 scheme at 1/54, and the Teachers' 2015 scheme at 1/57.
Career average. A Local Government Pension Scheme member earning £30,000 adds £30,000 ÷ 49 = £612 of yearly pension to their account this year. That £612 then gets increased each year in line with the cost of living, and next year's pay builds another slice on top.
How a defined contribution pension is worked out
There is no formula for the outcome. You and your employer pay in, the money is invested, charges come off, and the pot rises or falls. Under auto-enrolment the legal minimum is 8% of qualifying earnings, with at least 3% from the employer. Our guide to employer pension contributions covers what a good match looks like, and pension charges covers what the fees quietly take out.
At retirement you decide what to do with the pot: buy an annuity, move it into drawdown, or take lump sums. Our guide to annuity vs drawdown walks through that choice.
What a DB pension would cost you to buy
Priya's £22,500 a year is worth thinking about in pot terms. If you were funding the same income from a defined contribution pot and drawing it at 3.9% a year (the safe withdrawal rate discussed in our guide to how long a pension lasts), you would need roughly £577,000. That is an illustration, not a transfer value, but it shows why a modest-sounding final salary pension is usually the most valuable thing a person owns after their house.
Who has which now
Defined benefit is closing down in the private sector and alive in the public sector. The Pensions Regulator counted 5,060 private DB and hybrid schemes at 31 March 2025, with 74% closed to future accrual, meaning existing members can no longer build up new years. Only 662,000 people were still actively building a private sector DB pension. Across the UK there were 8,110,000 active DB memberships, and 92% of them were in public service schemes.
So if you work for the NHS, a council, a school or the civil service, you are probably still building defined benefit. If your pension started through auto-enrolment after 2012, it is almost certainly defined contribution. Plenty of people have both, because a DB pension from an old job sits quietly as a deferred pension while a DC pot grows at the current one. Our guide to finding old pensions helps if you have lost track.
How to tell which one you have
- Your statement shows a pot value and fund choices. Defined contribution.
- Your statement shows a pension of £X a year at age 65, plus years of service. Defined benefit.
- You see a fraction like 1/60, 1/80, 1/54 or 1/49. Defined benefit accrual rate.
- You see words like "money purchase", "your fund" or a platform name. Defined contribution.
- You have a "normal pension age" set by the scheme rather than a choice of when to draw. Defined benefit.
See what your pot could grow to
If your pension is defined contribution, the outcome depends on what you pay in. The free calculator shows what today's contributions could be worth at retirement.
Try the calculator →What each one does well
Defined benefit
The income is guaranteed and it keeps up with prices within limits. Schemes must increase pensions in payment built up after April 1997, capped at 5% a year for service between April 1997 and April 2005 and 2.5% for service after that. Leave the job before retiring and your deferred pension is revalued each year, capped at 5% for service up to 5 April 2009 and 2.5% after. Most schemes also pay a pension to a spouse or partner after your death, typically half of yours.
If the employer fails, the Pension Protection Fund takes the scheme on. You get 100% of your pension if you had already reached your scheme's pension age when the employer became insolvent, and 90% if you had not, with post-1997 service rising at CPI capped at 2.5%.
Defined contribution
You get flexibility and ownership. You can normally start taking money at 55, rising to 57 in April 2028, and you choose how much and when rather than accepting the scheme's timetable. Whatever is left when you die passes to whoever you nominate, which a DB pension cannot do.
Should you ever transfer DB to DC?
Occasionally, but the bar is deliberately high. Transferring converts a guaranteed lifetime income into a pot you have to manage, and the guarantee cannot be bought back. If the transfer value of your safeguarded benefits is more than £30,000, the law requires you to take advice from a firm authorised by the FCA to advise on pension transfers before the scheme can act, and the FCA's starting position is that a transfer is unlikely to be suitable for most people. Unfunded public service schemes, including the NHS and Teachers' schemes, cannot be transferred to a defined contribution pension at all. A large transfer value also attracts fraud, so read our guide to pension scams before talking to anyone who approaches you about one.
Common questions
What is the difference between defined benefit and defined contribution?
Defined benefit promises an income for life based on your salary and service. Defined contribution builds a pot from contributions and investment returns. The employer carries the risk in the first, and you carry it in the second.
How do I know which type I have?
Check your annual statement. A pot value with fund choices means defined contribution. A yearly pension figure with an accrual rate such as 1/60 and years of service means defined benefit. Anything started by auto-enrolment since 2012 is defined contribution.
Is final salary the same as defined benefit?
Final salary is one kind of defined benefit pension, based on your pay when you leave. Career average, or CARE, is the other, where each year builds a slice of pension from that year's pay. Both are defined benefit.
Can I transfer a defined benefit pension?
Usually yes if you have not started drawing it, but transfer values above £30,000 require advice from an FCA-authorised pension transfer specialist first. Unfunded public service schemes such as the NHS and Teachers' schemes cannot be transferred out to a defined contribution pension.
Sources
- Scheme numbers, closure rates and active membership (5,060 private schemes, 74% closed to future accrual, 662,000 active private members, 8,110,000 active DB memberships with 92% in public service): The Pensions Regulator, Occupational defined benefit landscape in the UK 2025, published 16 December 2025, data as at 31 March 2025.
- Indexation and revaluation caps (5% and 2.5%, and the April 1997, April 2005 and April 2009 dates): House of Commons Library briefing SN05656, Occupational pension increases, 12 September 2025.
- LGPS 1/49 accrual, pre-2014 final salary rates: LGPS member site, How your pension is worked out. NHS 2015 (1/54) and Teachers' 2015 (1/57) accrual rates: scheme guidance.
- Pension Protection Fund compensation at 100% and 90%, and post-1997 increases at CPI capped 2.5%: Pension Protection Fund.
- £30,000 advice requirement for safeguarded benefits: FCA, Defined benefit pension transfers.
- The £577,000 figure is our own illustration: £22,500 ÷ 3.9%, using the withdrawal rate discussed in our guide to how long a pension lasts. Figures correct as of August 2026.
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This article is for general information only and does not constitute financial advice. Scheme rules vary, and your own accrual rate, pension age and increases will be set out in your scheme booklet or annual statement; figures relate to the 2026/27 tax year and are correct as of August 2026. Transferring a defined benefit pension is a decision that cannot be reversed. For advice tailored to you, speak to a financial adviser regulated by the Financial Conduct Authority (FCA), or get free guidance from MoneyHelper.