What is a DB pension?

What is a DB pension? A defined benefit pension is a special type of workplace pension, most often provided by the public sector and government employers and are quite rare to find now within the private sector.

If you have a DB pension it will provide you with a guaranteed annual income for life, and this is based on the number of years you're a member of the scheme... the scheme's accrual rate (which is the proportion of your earnings that you'll get as a pension for each year that you're in the scheme)...and your salary.

There are 2 varieties of DB pension to be on the lookout for, you might even have both. The first based on your final salary when you move jobs or retire is imaginatively called a final salary pension, the other is called a career-average pension, and you've guessed it, is based on your average salary throughout your career at the company.

If you're part of a DB pension scheme, any contributions you make will qualify for tax relief. Your employer pays in too, but only to maintain the scheme. Unlike a DC pension, DB pensions are invested int he stock market, but one of the major benefits of a defined benefit scheme is that the full risk of the investment is taken by the scheme, so you don't need to worry about how investments actually perform.

Most DB pensions have normal pension age, this just means the age you can typically take it. And it's usually linked to the state pension age, at least aged 65, but this can vary depending on the scheme. You can receive income from your DB pension earlier than this though, normally from age 55. But taking your pension early could mean the income you get will be reduced, because you're taking it earlier than the scheme's normal pension age. When you do take your pension income, it will usually be paid to you on an ongoing monthly basis, and some schemes may also allow you to take a cash-free lump sum.

If you're in poor health, you may also be able to take your pension early. Schemes have protections in place to allow this.

Defined benefit pensions can also be index-linked, meaning the amount you receive in retirement will increase each year to keep up with the rising cost of living over time.

DB schemes come in all shapes and sizes. The age at which you can take your money and the way it's all calculated can depend on your employer, so it's worth checking your scheme to understand yours.