What do DB and DC mean?

DB or DC, that is the question?

What do DB and DC stand for?

It’s not Latin, if that’s what you were thinking. Defined Contribution pensions, or DC, are where you contribute money to your pension and your money is invested, allowing it to grow over time. Your employer contributes too, beefing your money up - sometimes even matching what you add.

Defined Benefit pensions - or DB pensions - are often called ‘final salary’ or ‘career average’. Your employer pays you a pension, and its value is determined by how long you’d been at that company and your final salary when you retire. You contribute your own money too, just like a DC pension. It’s the ultimate in security, as you cannot run out of money in retirement. Your income is guaranteed, and it also rises with inflation.

Sadly, DB schemes are expensive for employers, so they’re not offered as much anymore. Only a few large public sector businesses tend to offer DB pensions to new employees.

Most people in the UK have DC workplace pensions.

What kind do you have?

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