Pensions – definitions – Defined benefit scheme (DB)

Defined benefit is a pension scheme where the payout is based on an employee’s salary and length of service. The exact formula to work out the pension on retirement varies between schemes. 

There are several types of defined benefits schemes; the most common is a final salary scheme, while some employers run a career average scheme. DB schemes used to be commonly offered in the UK, but many have now closed and employers prefer to offer defined contribution schemes which carry less risk for the employer, and are cheaper to run.

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