What is a Defined Benefit Pension?
A Defined Benefit pension is a term describing a scheme that promises a level of income at retirement depending on your earnings from your employment and length of service.
These schemes do not base your retirement income on how well your pension fund grows, the scheme have to pay the promised pension income even if the investments don’t perform well. There are two types of Defined Benefit pension:-
- Final salary schemes, which are based on your earnings when you leave the pension scheme or retire
- Career Average schemes, which are based on the average of your earnings across your career within the pension scheme
As the investment risk in this type of pension lies entirely with the pension scheme, they are seen as a high value benefit to employees.
Both types of pension offer valuable benefits to members such as pensions that rise with inflation, death benefits and a guaranteed level of income.
Transferring out of Defined Benefit scheme is unlikely to be in the best interests of most people
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
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