Defined Benefit vs Defined Contribution Calculator
Compare a defined benefit (final salary) pension against a defined contribution pot. Shows annual income, projected pot, transfer value and tax-free cash for both types side by side.
Last updated: April 2026
Defined benefit (final salary / CARE) pension
Defined contribution pension
DB vs DC comparison
DB annual pension
-
-
Defined Benefit
-
annual income, guaranteed
Defined Contribution
-
projected pot at retirement
DC equivalent income (4% rule) -
DB transfer value (approx. 20x) -
DB tax-free cash (3x pension) -
DC tax-free cash (25% of pot) -
Defined benefit versus defined contribution pensions
A defined benefit (DB) pension - often called a final salary or career average pension - promises a specific income in retirement, calculated by a formula based on your salary and years of service. A defined contribution (DC) pension builds a pot of money through contributions and investment growth, with the final income depending on how the pot is drawn down or converted to an annuity. DB pensions are primarily found in the public sector; private sector employers have almost universally moved to DC schemes.
The security advantage of DB
DB pensions are highly valuable because the income is guaranteed for life, usually index-linked, and completely insulated from investment risk - the employer bears the investment and longevity risk. This certainty has significant value that is difficult to replicate with a DC pot. A common rule of thumb is that a DB pension of £1 per year is worth approximately £20–£25 as a lump sum (the transfer value), reflecting the cost of buying an equivalent annuity. Most financial advisers recommend keeping a DB pension rather than transferring it unless exceptional circumstances apply.
Transfer value considerations
You can transfer a DB pension to a DC scheme, receiving a lump sum transfer value. These transfer values have been very high in recent years (up to 40–50x the annual pension in low-interest-rate environments) but have fallen significantly as interest rates have risen. Transferring a DB pension worth over £30,000 requires regulated financial advice - a deliberate legal barrier designed to ensure people properly understand what they are giving up. In the vast majority of cases, the advice will be to retain the DB pension.
Frequently asked questions
In most cases no - the guaranteed, inflation-linked income of a DB pension is extremely valuable and very difficult to replicate with a DC pot. The FCA requires regulated advice for transfers over £30,000 specifically because the default assumption is that transfer is usually not in the member's interest. Potential reasons to consider a transfer include: very poor health with reduced life expectancy, desire to pass the money to beneficiaries (DB pensions typically die with you, though spouses often get a reduced pension), significant DB income already secured from another source, or a very high transfer value. This is one area where specialist financial advice is genuinely essential.
A Career Average Revalued Earnings (CARE) pension is a type of DB scheme where each year of service earns a fraction of that year's salary (rather than the final salary). The annual accruals are revalued each year by inflation (or a fixed rate) until retirement. Most public sector pensions (NHS, Teachers, Civil Service) moved from final salary to CARE arrangements from 2015–2022. CARE pensions are generally slightly less generous than final salary schemes for long-serving high-earners, but fairer for those who change jobs frequently or have salary increases late in career.
Yes. Most DB schemes allow you to commute some of your annual pension for a lump sum at retirement. The typical commutation rate is £12 of tax-free lump sum for every £1 of annual pension given up (or 3x the annual pension as a lump sum with no pension reduction for some schemes). Whether commutation is financially worthwhile depends on the commutation factor and your personal tax position - if the lump sum can be invested at a return higher than the implied annuity rate in the commutation offer, taking the lump sum can be advantageous.