What is a defined benefit pension? - Financial advisers, investment, wealth management and pensions advice - Ginkgo Financial Ltd
An introduction to pension transfer advice

What is a defined benefit pension?

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A defined benefit pension scheme is a pension which guarantees you will get a specific benefit when you reach the scheme’s retirement age. The ‘benefit’ is usually based upon a formula that reflects your salary and years of service. There is no investment risk with this type of scheme.

Alternatively, with a defined contribution pension scheme what you get when you retire is not specified in advance. The final value of the pot will depend on the amount paid in, charges and performance. However, a defined contribution pension scheme may offer more flexibility and control. With this type of arrangement, you will have ongoing decisions to make about how your money is invested and the amount of investment risk you are willing to take. You could use some or all of the money to buy a guaranteed income for the future.

Whether or not to do this will be one of the many decisions you will need to make. You could choose a flexible income arrangement where you can withdraw the income you want. These are complex decisions and you may need advice as there could be tax implications and other risks to consider.

You should understand that the financial services regulator, the Financial Conduct Authority (FCA), has stated that it will be in the interests of most people to keep their defined benefits pensions because of the valuable guarantees these provide. Many people underestimate how long they will live and defined benefits schemes protect you from the risk of your money running out.