A defined benefit pension is a workplace pension that promises to pay you a certain amount each year when you retire1. Instead of building up a pot of money whose value depends on investments, the income is worked out from your salary and how long you have been a member of the scheme2. These pensions are also known as "final salary" or "salary-related" pensions, and the two main types are final salary and career average schemes3.
The promise is the employer's. Your employer makes contributions to the scheme and is responsible for making sure there is enough money at retirement to pay a secure income for life2. Because the income does not depend on investment performance, you carry none of the investment risk yourself4. In exchange, you give up flexibility: you cannot usually dip into the pension as a pot of cash, and the Financial Conduct Authority (FCA) and the Pensions Regulator state that most people are better off keeping a defined benefit pension rather than transferring out of one5.
What a defined benefit pension is
A defined benefit workplace pension scheme promises to give you a certain amount each year when you retire1. That amount is set by a formula, not by how the scheme's investments perform, and once it begins it is paid for the rest of your life8. This is the defining difference from a defined contribution pension, which is a pot of money built up from what you or your employer paid in, and which you then have to convert into an income yourself9.
The responsibility for the money sits with the employer. Your employer will make contributions to your defined benefit pension scheme and is responsible for making sure there is enough money at retirement to pay a secure income for life2. If investments do badly, it is the employer's problem, not yours; if you live longer than expected, the scheme keeps paying. Defined benefit pensions do not depend on investments; they are based on your salary and how long you worked for your employer4.
Most defined benefit schemes are workplace schemes run for the employees of a particular employer or group, and many public sector employers still offer them. They have become rarer in the private sector, but millions of people hold benefits in schemes they have left or that have closed to new members. The FCA and the Pensions Regulator consider the guarantee valuable enough that they state most people are better off keeping a defined benefit pension5, which is why the rules put barriers in the way of transferring out, covered later in this page.
Final salary or career average: how your pension is worked out
With these schemes the pension you get when you retire is usually based on a fraction of your salary, multiplied by the number of years you were a member of the scheme10. The amount you get at retirement is based on how long you have been a member of the pension and your earnings3. The two common versions differ only in which salary is used:
| Type | What it uses | What that means |
|---|---|---|
| Final salary | Your salary at or near the end of your membership | Pay rises late in your career increase the whole pension |
| Career average | Your salary in each year of membership, revalued | Each year counts on its own, so late pay rises count less |
A worked example shows the mechanics. Someone who starts paying into a scheme at 35, whose pension is based on 1/80 of final salary, would build up 20/80 of final salary by retiring at 55, or 30/80 by retiring at 6510. Each year of membership adds another fraction, so the pension grows steadily with service.
The details vary by scheme. One scheme's worked example calculates the Final Pensionable Salary from the contributions made in the last ten years of service, with the income starting on the member's 65th birthday, the scheme's normal retirement age, and all benefits having to be taken before the 75th birthday11. Your own scheme's formula, the fraction it uses and the salary definition it applies will be set out in its rules and in the annual benefit statements it sends you.
A guaranteed income for life that usually rises with inflation
The core of the promise is a guaranteed income for life after retirement, based on your final salary or career-average earnings8. Final salary pensions give you a guaranteed income when you come to retire, which often rises with inflation each year12. That combination, a known income that cannot run out and that partly keeps pace with prices, is what distinguishes a defined benefit pension from every way of using a defined contribution pot.
The increases are not a bonus; they are part of how the scheme keeps its promise. If you leave the scheme before retirement, your benefits will be revalued regularly to keep up with inflation13. Once the pension is being paid, most schemes apply annual increases to at least part of it, though the exact indexation depends on the scheme's rules and on when the service was built up. The same principle applies if the scheme ever enters the Pension Protection Fund, where payments built up after 5 April 1997 rise in line with inflation each year, subject to a maximum of 2.5 per cent7.
In practice this means a defined benefit pension behaves like a salary you cannot outlive. You cannot choose to take more of it in a good year, and you cannot pass the capital on as a lump sum to your family in most cases, but you also cannot run it down, and you are not exposed to stock market falls just before or during retirement. The trade-offs, particularly around death benefits and flexibility, are covered in the sections below.
Taking your pension: normal retirement age, early retirement and tax-free cash
Every scheme has a normal pension age, the age at which it pays the pension in full. It is typically 60 or 656. One scheme's example works out the income to start on the member's 65th birthday, the normal retirement age, with all benefits having to be taken before the 75th birthday11. Your scheme's normal pension age is not the same as your State Pension age, and the two incomes start at different times.
Taking the pension early is usually possible but costly. In an official example, a member called Michael, whose scheme retirement age was 60, retired at 58 and his pension was reduced by 10 per cent because it was paid two years early10. The reduction is permanent: the pension is revalued from the lower starting point, so the cost of early retirement is spread over the whole of retirement. Each scheme sets its own reduction rates, and the scheme administrator can give the figures for your own benefits.
There are two special cases. If you have a serious illness with a life expectancy of less than a year, you can take up to 100 per cent of your pension fund as a tax-free lump sum10. And if you are thinking of a defined contribution pot alongside, you can generally access that money at 556, though the rules for taking money from pensions are changing: you can take up to 25% from your pension as a tax-free lump sum at any time from age 55, rising to 57 from April 202814.
Most defined benefit schemes also offer a lump sum at retirement. When you retire you can take some of your pension as a tax-free cash lump sum3. Under current rules you can take up to 25% of your pension as a tax-free lump sum once you turn 5515. In a defined benefit scheme this works by giving up part of your annual income: the scheme applies factors, often called commutation factors, to convert pension income into cash. The factors are set by the scheme, so the same income can produce different lump sums in different schemes. Whether to take the cash is a trade-off between money now and income for the rest of your life, and the scheme's quotation will show both.
How defined benefit pension income is taxed
The income from a defined benefit pension is taxed as income. When you retire you can take some of your pension as a tax-free cash lump sum; the rest you get as regular income, on which you pay tax3. Defined benefit pension income is taxed in the same way as employment income: it is added to any other income you receive, such as savings interest, and Income Tax is paid on the total16. The pension income is taxed under the normal Income Tax rules through PAYE like a salary.
The tax-free element has limits. You can take up to 25% of a defined contribution pot tax-free, up to a maximum of £268,275, from the age of 558, and all pension income apart from the upfront lump sum worth up to 25% is counted when calculating how much Income Tax you pay each tax year, which runs from 6 April to 5 April14. If you have several pensions, the tax-free cash you have taken across all of them counts towards the same overall allowance, so taking a lump sum from one pension can reduce what you can take tax-free from another.
Two further points are worth knowing. Payments that a scheme makes to members out of a surplus are taxed as pension income17. And on death, payments to a spouse or civil partner from a defined benefit scheme, known as a dependants' scheme pension, will not be subject to inheritance tax, even after the April 2027 rule change18. The wider position on death is the next section.
What happens to your pension when you die
Most defined benefit schemes will continue to pay a portion of your pension income to any of your dependents after you die, usually stopping when your partner dies and any children reach a certain age, often 18, or 23 if still in education5. The detail depends on the scheme, but the common pattern is:
- If you die before taking the pension, the scheme will usually pay out a lump sum to your spouse or civil partner, typically two or three times your salary19.
- If you die after reaching the scheme's pension age, payments to a spouse or civil partner are usually around 50% of what you would have received19.
- Who can inherit: with defined benefit schemes, it is usually only spouses and civil partners who can inherit payments19.
- Children: if you are unmarried or widowed and have children, some defined benefit schemes offer payouts to those under 18, or under 23 if they are in full-time education19.
This is the sharpest contrast with a defined contribution pension. If you die before you reach 75, you can usually pass a defined contribution pension tax-free to a nominated beneficiary, up to £1,073,10018; if you die aged 75 or over, your beneficiaries will normally pay income tax when they withdraw money from your pension19. Money left in a defined contribution pension can be left to anyone you nominate5, so a transfer might mean more of your pension reaches your children, though it would also mean giving up the guarantees described above. The dedicated page on death benefits covers the choices in more detail.
Transferring a defined benefit pension: what you give up
If you transfer a defined benefit pension into a defined contribution scheme, you will lose the promise of a guaranteed retirement income for life with automatic annual increases5. In exchange you gain flexibility: a defined contribution pot can be accessed from 55, can be passed to anyone you nominate, and can be withdrawn, drawn down or used to buy an annuity on your own terms. The FCA and the Pensions Regulator state that most people are better off keeping a defined benefit pension5, which is why the process is deliberately slow and, above a threshold, requires paid advice.
Not every scheme can be transferred out at all. Some defined benefit schemes might not allow transfers out after your pension has started paying out, within a year of reaching normal retirement age, or if you have an unfunded public sector scheme like the NHS or Teachers' Pension Schemes5. If you are already receiving payments from a defined benefit scheme, you will not be able to switch to a defined contribution scheme, and the same applies to those in unfunded public sector defined benefit pensions, such as those for the NHS, teachers, the armed forces, the civil service, police and fire service12. If you are a member of a DB scheme which is not in a PPF assessment period, you might be able to transfer out your benefits into an alternative pension arrangement, such as a defined contribution pension20.
To transfer your pension, you usually need to check your current scheme allows transfers out, make sure you will not lose any benefits, decide which scheme to transfer into, check if you need to pay for financial advice, ask your current provider for a transfer value, and then ask the new scheme to start the transfer5. The transfer value, sometimes called a cash equivalent transfer value, is the sum the scheme calculates as being worth the same as the income you are giving up. It is a one-way decision: once the transfer completes, the guarantee is gone for good. The page on transferring out of a final salary pension goes deeper, and transferring pensions between providers covers the mechanics.
Financial advice is required above £30,000
If your defined benefit pension is worth over £30,000, you will need to pay for financial advice before you can transfer it into a defined contribution pension5. The threshold is the transfer value: you are legally required to take financial advice if you want to transfer a defined benefit pension with a transfer value of £30,000 or more15. Obtaining independent advice is a legal requirement if you are considering transferring out of your DB scheme, and the value of your benefits is £30,000 or more20.
The adviser's job is to look at whether the transfer suits your circumstances, and they can tell you not to do it. You are free to ignore the advice and transfer anyway, but the scheme will not pay the transfer until an adviser has confirmed in writing that they have given you advice. The cost of that advice is yours to pay, whether or not you go ahead.
If the advice turns out to have been unsuitable, there is a route to redress. The FSCS compares the benefits lost from the DB pension with the benefits in the current pension to find the difference, and that difference, up to the limit, is the compensation payable21. Compensation may be refused where there is no evidence of the advice, no evidence of loss, a gain is shown, or the claim falls outside eligible dates21. Where the adviser is still trading, the FSCS route is to complain to the adviser first and then contact the Financial Ombudsman Service; FSCS handles claims where the adviser has failed21. The narrow page on when advice is required to transfer has the detail.
Pension Protection Fund: what happens if your employer goes bust
The Pension Protection Fund (PPF) is a statutory fund set up to protect members of DB schemes if the scheme's sponsor becomes insolvent22. It was set up in 2005 to protect you if your employer, and its pension scheme, can no longer afford to pay your promised pension7, and it only applies to companies and employers that went bust on or after 6 April 200523. It protects millions of people in the UK who are members of defined benefit pension schemes, and if the pension scheme you paid into does not have enough funds to pay you the pension it promised, the PPF will provide compensation2. It does not protect defined contribution schemes, sometimes known as money purchase pension schemes2.
The process starts when the employer sponsoring your defined benefit pension scheme becomes insolvent: the PPF will assess the scheme to see if it can pay the promised pensions, and on average this process takes two years to complete24. The assessment period has to be completed before a scheme can transfer to the PPF24. When your employer becomes insolvent and your scheme transfers into the PPF, you become a PPF member25. During the assessment period your benefits continue to be paid by the scheme, and if you are a member of a DB scheme which is not in a PPF assessment period, you might still be able to transfer out20.
What the PPF pays depends on your age:
| Your position when the scheme enters the PPF | What you get |
|---|---|
| You have reached the scheme's pension age | 100 per cent compensation1 |
| You are below the scheme's pension age | 90 per cent compensation1 |
If you have not reached your scheme's normal pension age, you will receive 90% of your pension from the Pension Protection Fund23. The PPF's own worked example shows what this means in cash: Lisa, an active employee aged 47 with a pensionable salary of £23,000 a year in a scheme with a normal pension age of 60, would receive a total of £4,140 a year, taking into account the 90 per cent compensation level7. If you had already retired, you receive a pension from the PPF equal to 100% of your employer's pension on the date of its insolvency26. Under the cap regime that applied before July 2021, a member aged 65 received 100% of the compensation cap, a total pension of £41,461 a year26.
PPF compensation is also indexation-limited. PPF benefit payments will generally rise in line with inflation each year, subject to a maximum of 2.5 per cent, and this applies to pensionable service after 5 April 1997 only7. Payments built up before 5 April 1997 will not increase26. So a member whose pension is compensated by the PPF may see smaller annual increases than the scheme's own rules would have given.
Not everyone is covered. Members who left the scheme before 6 April 1975 are not protected, and in those circumstances a refund of contributions, minus Tax and National Insurance, is likely to have been paid at the time2. To establish entitlement, the PPF needs at least one of the following documents: a letter or preserved benefit statement confirming benefits were preserved at the date of leaving, preserved benefit statements sent after leaving, or pension correspondence sent after leaving2. There is also a separate Fraud Compensation Fund: if your employer has gone bust and the value of the pension fund has lost money because of dishonesty or fraud, there is a separate fund to pay compensation23.
Two further points on the PPF's current position. From 7 July 2026, the PPF is contacting all members who will be eligible for pre-97 increases, to make them aware of the changes to their entitlement, and it could take up to two months for all communications to be sent and received; it expects around 180,000 PPF members and around 85,000 FAS members to be part of the first group, and around 39,000 PPF members and around 27,000 FAS members in a second group27. The PPF confirmed a zero levy for 2026/27 in February and published its levy rules and policy statement in March27. The PPF is funded by an annual levy on pension schemes, the assets transferred to it from schemes it has taken over, recovery of money from companies that have gone bust, and investment returns on the assets it holds26. The full guide to the Pension Protection Fund covers the detail, and PPF vs FSCS protection compares the two schemes.
Scams, complaints and where to get help
Defined benefit pensions are a frequent target for scammers, precisely because a transfer converts a guaranteed income into a large cash sum. Scheme governing bodies are expected to provide clear information on how to spot a scam in all relevant communications to members, including the retirement wake-up pack and annual benefit statements, and may also place scam warning messages on the scheme's website28. Trustees are also expected to provide members of defined benefit schemes with a link to FCA information on considering a pension transfer from a defined benefit pension29.
Warning signs associated with pension scams include offers of early access to your pension, unusual investments or a "guaranteed" return; the page on pension scams covers these in detail. Scams can be reported to the pension provider, the Financial Conduct Authority, and Action Fraud30. In England, Northern Ireland and Wales, fraud or concerns about a potential scam are reported to Report Fraud31. The Financial Ombudsman Service warns consumers to keep their pension safe from scammers and offers a free, independent service to help32.
Complaints are split between two ombudsman services, and the split matters:
- The Pensions Ombudsman can help if you have a complaint about your pension scheme, including how it is run or administered33. Complaints about the sale or marketing of pensions, or about financial advisers, need to go to the Financial Ombudsman Service instead34. Complaints about firms not on the FCA Register are referred to the Pensions Ombudsman35. Complaints about the Pension Protection Fund or the Financial Assistance Scheme have different rules about what the Pensions Ombudsman can look into and decide34.
- The Financial Ombudsman Service handles complaints about pension providers and advisers. Where a complaint is upheld, it will likely tell the pension provider to put things right, for example by paying compensation into your pension plan or straight to you, and compensation for distress or inconvenience36. If the FOS cannot investigate your pensions complaint, it will tell you about an organisation that might be able to help37. Pensions are a significant part of its workload: 931 complaints about personal pensions were opened in the first quarter of 2026/2738.
If you have received unsuitable advice to transfer, complain to the adviser first if it is still trading, then contact the Financial Ombudsman Service; FSCS handles claims where the adviser has failed21. FSCS protects pension advice, so it can pay compensation if your adviser fails39. FSCS protection varies depending on the type of pension product, and there are limits to the amount it can compensate40. Generally, FSCS can protect pensions that are provided by UK-regulated insurers, as long as they qualify as contracts of long-term insurance, and where FSCS can pay compensation, it will cover the pension at 100% with no upper cap41. Occupational pension schemes are a different case: these may be protected by the Pension Protection Fund instead41.
Free, impartial help is available before any decision. Pension Wise offers free guidance on your pension options, and charities such as Independent Age provide advice on private pensions42. The Pensions Regulator also publishes information for scheme members on reporting concerns about a workplace pension33. Because a defined benefit transfer is irreversible, taking the free guidance before paying for advice is a sensible first step.
Sources42 cited
- Safety of workplace pension schemes nidirect, 2025-12-03
- Who we protect Pension Protection Fund, 2026-09-26
- Types of workplace pension scheme nidirect, 2025-07-31
- Private pensions advice Independent Age, 2026-09-26
- Pension transfer: defined contribution Financial Conduct Authority, 2026-09-25
- How to boost your pension Which?, 2026-08-10
- What is the PPF booklet Pension Protection Fund, 2026-01
- How pensions work Which?, 2026-04-07
- How your personal pension is paid nidirect, 2026-09-25
- Early retirement: the effect on your pension nidirect, 2025-07-31
- Pension calculation Which?, 2025-11-03
- Should I combine my pensions? Which?, 2026-09-11
- Workplace pensions: changes in personal circumstances nidirect, 2025-09-11
- Adjustable income Pension Wise, 2026-09-28
- Should you get financial advice to help with your pension planning? Which?, 2026-04-25
- Take your whole pot in one go Pension Wise, 2026-09-28
- Defined benefit pension scheme surplus payments to members HM Government, 2026-07-13
- Will my pension be subject to inheritance tax? Which?, 2026-07-23
- What happens to my pension when I die? Which?, 2026-09-17
- Worried about your pension Pension Protection Fund, 2026-09-26
- Defined benefit pension transfer claims FSCS, 2026-09-25
- Pension Protection Fund research briefing CBP-10293 House of Commons Library, 2026-07-08
- What is the Pension Protection Fund? Which?, 2026-06-22
- If my employer becomes insolvent Pension Protection Fund, 2026-09-26
- What it means to be in the PPF Pension Protection Fund, 2026-09-26
- What is the Pension Protection Fund? Which?, 2026-06-22
- Pre-97 increases Pension Protection Fund, 2026-09-26
- Scams: information to members The Pensions Regulator, 2026-09-26
- Warn members about pension scams The Pensions Regulator, 2026-09-26
- Pension scams research briefing CBP-8643 House of Commons Library, 2026-09-26
- Pledge to combat pension scams The Pensions Regulator, 2026-09-28
- Keep pension safe from scammers, warns Financial Ombudsman Service Financial Ombudsman Service, 2025-09-18
- Report concerns about your workplace pension The Pensions Regulator, 2026-09-26
- What we can and cannot do The Pensions Ombudsman, 2026
- Pensions and annuities Financial Ombudsman Service, 2026-09-26
- Pensions organised by employers Financial Ombudsman Service, 2026-09-26
- Personal pensions Financial Ombudsman Service, 2026-09-26
- Quarterly complaints data Q1 2026/27 Financial Ombudsman Service, 2026
- FSCS protection for pension advice FSCS, 2026-09-25
- Stolen pension FSCS, 2026-09-25
- What we cover: pensions FSCS, 2026-09-25
- Guide to investment protection FSCS, 2026-09-25
Pension WiseFree guidance on your options for a defined contribution pension, from age 50
FSCSProtects your money if a bank, insurer or investment firm fails
GOV.UKOfficial information on tax, benefits and government services