More about DB and DC pensions
DB pensions
Payment basis
The amount of income payable at retirement is based on the number of years you were a member of the scheme, and your salary at the time.
Increases and death benefits
It's common for DB pension payments to increase each year, and to provide a pension to a spouse or financial dependant in the event of your death. The exact details of any increases or death benefits will be available from the scheme.
Accessing the scheme early
If you take benefits from a DB pension early it's common for the scheme to reduce the amount of income you receive. This is to compensate the scheme for paying your pension for longer.
Guaranteed income
The most important thing to remember about a DB pension is that the income is guaranteed, without any need for you to take any risk or do anything.
DC pensions
Payment basis
With a DC pension, the amount of income payable at retirement is wholly reliant on how much you have saved, which in turn is based on how much you (and your employer) have been contributing and the amount of investment growth received.
Flexibility and choice
With a DC pension you have complete choice about how you access your pension savings. You can buy an annuity, use drawdown, take your tax free cash and keep working or mix your options.
When can I access it?
You can access a DC pension any time from age 55 (rising to 57 in 2028). This is normally without penalty, but remember the earlier you start taking an income the longer it will have to last.
Additional benefits?
With some older pensions (normally from the 1980s and 1990s) there can be additional benefits such as income guarantees, or higher levels of tax free cash. These are unusual, but can be very valuable benefits. Specialist advice is normally needed when dealing with these.
Other names
DC pensions can also be referred to as Money Purchase pensions. There are different types of DC pensions, such as:
- Personal Pensions (PP)
- Group Personal Pensions (GPP)
- Self Invested Personal Pensions (SIPP)
It's all up to you
Remember DC pensions give you lots of choice and flexibility but the responsibility is all yours, which is why getting the right advice and guidance is so important.
What should I do next?
Find out about retirement living standards
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