Defined Contribution v Defined Benefit pensions – what are the trends?

Date Published: 14/06/2019 12:35

For the first time ever more people are now paying into Defined Contribution (DC) schemes than into Defined Benefit schemes.

According to the Office of National Statistics (ONS), in 2018 employee contributions into DC schemes reached £4.1bn, compared with £32.2bn going into DB schemes.

And with auto-enrolment pension contributions going up in April 2019, the trend of more money going into DC schemes rather than DB looks set to continue.

Defined Benefit pensions, also known as final salary pensions, guarantee to pay out a defined amount based on your salary. Usually the amount is based on an accrual rate, a fraction of your final salary, which is multiplied by the number of years you have been a member of the pension scheme.

But DB schemes are becoming scarce. People are living longer and so employers are finding themselves liable to pay out more. In the public sector there is a massive shortfall between what retirees are entitled to from their DB scheme and what is actually in the pot. But there are no plans to not pay pensioners – so don’t worry!

The pay out from Defined Contribution pensions on the other hand depend on how much is paid in and how much those contributions grow. The contributions from you and your employer are usually invested in a variety of asset classes. There can be differing levels of risk, as with any investments, but the goal is to see the fund grow.

Then when you retire you can convert how much you want into an annuity; take the whole lot as a lump sum, with 25 per cent being free from tax, or you can take lump sums out as you wish; again with the 25 per cent rule.

Whether you have a DB or DC pension (or a mix of the two) it is important to plan ahead and be realistic about what is in the pension pot. After all, as our MD Jillian Thomas says, retirement is either the longest holiday you will ever have or the longest period of unemployment.

No individual investment advice is given, nor intended to be given in this article and liability will be accepted in respect of any action you may take as a result of reading this article. If you are unsure you are urged to take independent investment advice.

For more information or advice, please get in touch on 01246 435 996

Contact Us

Future Life Wealth
Management Limited,
Future House,
54 Ravenshorn Way,
Renishaw, Sheffield S21 3WY

+44 (0) 1246 435 996

Opening Hours
Monday - Friday 8.30am - 5.00pm

Legal Information

Future Life Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority
The Financial Conduct Authority does not regulate taxation & trust advice
We are entered on the The Financial Conduct Register No 509960 at
The Financial Ombudsman service can be found at
Registered in England No. 07036892 Reg. Address: Future House, 54 Ravenshorn Way, Renishaw, Sheffield S21 3WY
The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
The value of your investment can go down as well as up and you may not get back the full amount invested.
Your home is at risk if you do not keep up with your mortgage repayments.
Equity release is a lifetime mortgage or home reversion plan.  To understand the features and risks please ask for a personalised illustration. 
We do not offer advice in relation to home reversion plans.
The tax observations contained in this website are made in good faith and are based on our understanding of current Revenue and Customs regulations. We cannot accept any responsibility for any future regulation that may retrospectively happen.