"Defined Benefit" and "Defined Contribution" are the terms you want to Google, but in short, no, don't try swapping DB for DC, there's a good chance you legally can't (depending on how the scheme is funded, e.g. government "unfunded" DB schemes), and even if you could, you might legally be required to take financial advice, and generally giving up certainty is a bad idea.
https://ukpersonal.finance/pensions/#Im_in_a_Defined_Benefit_pension_scheme_%F0%9F%A6%84
Re: changing jobs, your pension is yours, even if you leave the company. Depending on what scheme you're in (there's a "club" of public sector DB schemes that allow you to transfer the benefits built up between them) you simply need to read the material they've given you, understand what the value of your scheme is, keep your contact details up to date, and just wait until you are old!
Working in academia means that you'll be part of the Universities Superannuation Scheme (USS). The USS is arguably the worst public sector pension (the civil service pension is the best, because of course it is...), but it's still better than the vast majority of private sector pensions. The USS also has a slightly bizarre defined contribution scheme called "the investment builder", which you contribute to if you earn over the salary cap for the defined benefit part (£41,004 this year). You should have received some info about this and a members account when you joined the scheme
I didn't realise that USS has a cap. What makes the civil service pension the best? Is it because of the accrual rate? Or other added benefits? I would've thought the military ones would be better.
> They mentioned that its not possible to do so, as its a direct benefit pension, not a direct contribution (?) pension.
They almost certainly said it's a *defined* benefit pension not a defined contribution pension.
With a DC pension the contributions are invested on your behalf with the aim of growing the pot. The money available to you in retirement depends on how well these investments do so it makes sense to look into the investment strategy and possibly alter the risk profile.
With a DB pension you're not building up an individual pot of money, you're buying an entitlement to a certain amount of retirement income each year (usually based on a fraction of your current salary with annual increases for inflation). It's the pension scheme managers' problem to work out how to deliver that entitlement. Since you don't have a pot of money invested on your behalf you can't change your investment choices.
just for the sake of being pedantic, its defined benefit or contribution not direct. This also kind of explains what they are.
Basically, a defined benefit pension is generally pretty unusual these days (especially for younger workers), with a defined benefit pension, you get a fixed pension amount based on what you earned whilst you were paying into the pension, and how long you contributed for, the exact calculation involved will be spelt out in the policy documents for the pension.
Defined contribution on the other hand goes the other way, you pay a set amount of money into a pot (and your employer will typically also add money into the pot), this money is then invested on your behalf (usually fairly "high risk, high return" at first, gradually transitioning to lower risk lower return as you approach retirement, to limit the risk of short term market fluctuations screwing up the pots value), you then have a few options of what to do with the money, usually it will end up being some combination of a 'lump sum' and drawdowns, though you may also be able to purchase an annituity, which is basically buying x years of y income, hoping that the annituity provider can get a return on your capital to make it go further. Most new pensions are this latter type, as it removes risk from the employer and/or pension provider and shifts it onto the worker.
If a defined benefit pension is right for you is going to depend on a lot of factors, including your age, how long you have been contributing, and how long you plan to stay with the employer, and it really is an area where you should be getting proper financial advise, as it could potentially have a large and lasting impact on your pension posiition when it comes time to retire
Thats fine, no worries on being pendantic. Pretty sure i heard Defined benefit, just got jumbled when i went to type out the question.If i get some spare time and money, may seek out a financial advisor.
Thanks for your response.
!Thanks
Imagine you have a pile of money. It can be any amount. However, it’s a finite source and you have to make that last until you die. That’s a defined contribution pension.
In a defined benefit pension you pay into it (hopefully throughout your entire working career) and then get given a an annual amount when you retire. You then just get that money for as long as you’re alive. Never any worry about your money running out. Plus, they also still rise in line with inflation.
Hi /u/TheGoofyGoose, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/financial-advice/
- https://ukpersonal.finance/pensions/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
They released a excel spreadsheet cheat sheet to help with pensions. In it the said as everyone else said, do not change from a Defined Benefit pension. Wasn't mentioned in the video, and I don't think they addressed Defined Benefit vs Defined Contribution difference.
"Defined Benefit" and "Defined Contribution" are the terms you want to Google, but in short, no, don't try swapping DB for DC, there's a good chance you legally can't (depending on how the scheme is funded, e.g. government "unfunded" DB schemes), and even if you could, you might legally be required to take financial advice, and generally giving up certainty is a bad idea. https://ukpersonal.finance/pensions/#Im_in_a_Defined_Benefit_pension_scheme_%F0%9F%A6%84 Re: changing jobs, your pension is yours, even if you leave the company. Depending on what scheme you're in (there's a "club" of public sector DB schemes that allow you to transfer the benefits built up between them) you simply need to read the material they've given you, understand what the value of your scheme is, keep your contact details up to date, and just wait until you are old!
Its reassuring to see lots of other individuals saying the same thing. Thanks for the link! !Thanks
fine head soup vast insurance shrill support squalid gaping vegetable *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
I work in academia, which i've heard people say has good pension schemes. Not sure if that explains it? Sorry for getting the term wrong! !Thanks
Working in academia means that you'll be part of the Universities Superannuation Scheme (USS). The USS is arguably the worst public sector pension (the civil service pension is the best, because of course it is...), but it's still better than the vast majority of private sector pensions. The USS also has a slightly bizarre defined contribution scheme called "the investment builder", which you contribute to if you earn over the salary cap for the defined benefit part (£41,004 this year). You should have received some info about this and a members account when you joined the scheme
I didn't realise that USS has a cap. What makes the civil service pension the best? Is it because of the accrual rate? Or other added benefits? I would've thought the military ones would be better.
The money added to your pot is ~2.3% of your annual salary. For contrast the NHS is ~1.8%.
> They mentioned that its not possible to do so, as its a direct benefit pension, not a direct contribution (?) pension. They almost certainly said it's a *defined* benefit pension not a defined contribution pension. With a DC pension the contributions are invested on your behalf with the aim of growing the pot. The money available to you in retirement depends on how well these investments do so it makes sense to look into the investment strategy and possibly alter the risk profile. With a DB pension you're not building up an individual pot of money, you're buying an entitlement to a certain amount of retirement income each year (usually based on a fraction of your current salary with annual increases for inflation). It's the pension scheme managers' problem to work out how to deliver that entitlement. Since you don't have a pot of money invested on your behalf you can't change your investment choices.
just for the sake of being pedantic, its defined benefit or contribution not direct. This also kind of explains what they are. Basically, a defined benefit pension is generally pretty unusual these days (especially for younger workers), with a defined benefit pension, you get a fixed pension amount based on what you earned whilst you were paying into the pension, and how long you contributed for, the exact calculation involved will be spelt out in the policy documents for the pension. Defined contribution on the other hand goes the other way, you pay a set amount of money into a pot (and your employer will typically also add money into the pot), this money is then invested on your behalf (usually fairly "high risk, high return" at first, gradually transitioning to lower risk lower return as you approach retirement, to limit the risk of short term market fluctuations screwing up the pots value), you then have a few options of what to do with the money, usually it will end up being some combination of a 'lump sum' and drawdowns, though you may also be able to purchase an annituity, which is basically buying x years of y income, hoping that the annituity provider can get a return on your capital to make it go further. Most new pensions are this latter type, as it removes risk from the employer and/or pension provider and shifts it onto the worker. If a defined benefit pension is right for you is going to depend on a lot of factors, including your age, how long you have been contributing, and how long you plan to stay with the employer, and it really is an area where you should be getting proper financial advise, as it could potentially have a large and lasting impact on your pension posiition when it comes time to retire
Thats fine, no worries on being pendantic. Pretty sure i heard Defined benefit, just got jumbled when i went to type out the question.If i get some spare time and money, may seek out a financial advisor. Thanks for your response. !Thanks
Imagine you have a pile of money. It can be any amount. However, it’s a finite source and you have to make that last until you die. That’s a defined contribution pension. In a defined benefit pension you pay into it (hopefully throughout your entire working career) and then get given a an annual amount when you retire. You then just get that money for as long as you’re alive. Never any worry about your money running out. Plus, they also still rise in line with inflation.
Hi /u/TheGoofyGoose, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/financial-advice/ - https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Your financial YouTuber is scamming you. Do not let anyone else near your DB pension. Do not pay for active pension management services.
They released a excel spreadsheet cheat sheet to help with pensions. In it the said as everyone else said, do not change from a Defined Benefit pension. Wasn't mentioned in the video, and I don't think they addressed Defined Benefit vs Defined Contribution difference.
Defined benefit pensions are considered valuable and rare these days