What is a Defined Benefit Scheme?

In a defined benefit pension scheme, your pension is slowly built up through your years of service as a member of the scheme. This happens through an 'accrual rate', which is the rate at which your final pension builds up, expressed as a fraction of your final pensionable salary.

Accrual rates are typically between 1/60th and 1/80th per year of service. For example, if you are at a company for 40 years, and your accrual rate is 1/60th, your pension income will be 40/60 = 2/3 of your final pensionable salary.

Your final pensionable salary is the salary at which your defined benefit pension is calculated. This is typically either an average of the 3-5 years prior to retirement, or an average of the best 3 out of 10 years leading up to retirement.

In defined benefit schemes, you will typically have to contribute a fixed percentage of your salary. This often lies between 5% and 8%.

The below projection assumes an accrual rate of 1/60th, and a final pensionable salary calculated as the average salary across the three years prior to retirement. With a retirement age of 68, we have adjusted your retirement income based on our inflation assumption. Other key assumptions can be viewed on our homepage.

Your Defined Benefit Projection

Upon retiring at 68 years old, you could receive a retirement income equivalent to:

£32,200

in today's money.

It is important to note that you can receive this income on top of your basic state pension allowance, which is currently around £12,000 a year, however income tax will still apply. Defined benefit schemes are also protected by the Pension Protection Fund, meaning you will still be paid compensation should the sponsoring employer suffer an insolvency event.