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Defined benefit pensions

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A defined benefit pension scheme is a type of workplace pension that gives you a guaranteed income for life. They include ‘final salary’ and ‘career average’ pension schemes Historically this has made them popular with employees because they provide a guaranteed income for life.

Can I still join a defined benefit pension scheme?

Today new employees are not usually offered access to defined benefit schemes because they are too expensive to operate for many private sector employers. This type of scheme is most common among public sector and government employers, including teachers, NHS workers, police officers and firefighters.

How much can I expect to receive from a defined benefit pension?

The size of the pension will typically depend on factors including the number of years you have worked for your employer and your final salary when you stop work. You receive a set amount each year which rises in line with inflation.

It is your employer that bears responsibility for funding the scheme, which means they set aside money each month to pay for future pension payments. This money comes from contributions made by you and employer combined.

The pension scheme will have an ‘accrual rate’ which will determine the actual retirement income. This is essentially a fraction of your final or average salary, typically 1/80 or 1/60, which is then multiplied by the number of years you have belonged to the scheme.

Can I transfer my defined benefit pension?

You could potentially transfer out of it and into a defined contribution pension (money purchase pension) if you have not started taking an income from it, however transferring is unlikely to be in most people’s best interests. Some defined benefit schemes like the Teachers, Civil Service and NHS schemes cannot be transferred.

Obtaining professional financial advice about your pension is essential as a defined benefit transfer is not suitable for the majority of people; you cannot change your mind once it is complete and you are essentially giving up a guaranteed stable income that is protected from inflation in return for a cash lump sum.

What happens to my defined benefit pension when I die?

When you die the scheme rules will define who is classed as a dependant. This type of scheme is usually much stricter on who may receive a death benefits payment compared to a personal pension.

If you pass away before retirement from a defined benefit scheme, the trustees will usually pay a reduced pension to your spouse, registered civil partner or other dependent.

Children’s pensions may also sometimes be offered, if your children are still in full time education or university but cease once your children are no longer in education.

If you have already retired when you die, the scheme will usually continue paying a reduced pension to your spouse, registered civil partner or other dependent.

But this will depend on the scheme rules, and not every defined benefit scheme will have the same provision.

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