Defined benefit pension

Category: Pensions · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed 2026-06-10

A defined benefit (DB) pension is a pension scheme that provides a defined retirement benefit calculated by a formula based on the member’s years of pensionable service, accrual rate and pensionable salary. The two principal sub-types are “final salary” (benefit based on the salary at or near retirement) and “career average revalued earnings” (CARE; benefit based on average revalued salary across the member’s service). The investment and longevity risk fall on the employer (and ultimately the Pension Protection Fund if the employer becomes insolvent).

Category: Pensions Also known as: DB, final salary, CARE Risk-bearer: Employer Related concepts: Defined contribution pension, Pension Protection Fund, The Pensions Regulator

Definition

The historic British workplace pension was a DB scheme. Since the 2000s, the great majority of private sector DB schemes have been closed to new entrants and many also closed to future accrual; DB remains dominant in the public sector. DB schemes are heavily regulated to protect member rights.

Legal / Regulatory basis

DB schemes are governed by the Pension Schemes Act 1993, the Pensions Act 1995 (statutory funding objective, indexation), the Pensions Act 2004 (Pension Protection Fund, scheme-specific funding, The Pensions Regulator), and the Pension Schemes Act 2021 (long-term funding objective, criminal offences for serious mismanagement). Schemes must be funded to a statutory funding objective with a recovery plan if in deficit.

Scope of cover

A typical final salary scheme might provide 1/60 of pensionable salary per year of service, indexed at retirement. A 40-year career with final pensionable salary of £40,000 produces a pension of 40/60 × £40,000 = £26,667 per annum, with index-linking. CARE schemes operate similarly but on revalued averaged salary.

Practical example

A 50-year-old member of a DB scheme with 25 years of pensionable service has accrued pension of 25/60 × salary. At a current pensionable salary of £35,000 her accrued benefit is £14,583 per annum payable from normal retirement date, with statutory revaluation in deferment if she leaves service before NRD, and with subsequent CPI indexation in payment subject to scheme rules.

See also

• Defined contribution pension
• Pension Protection Fund
• The Pensions Regulator
• Spouse’s pension
• Workplace pension

References

1. Pension Schemes Act 1993 — https://www.legislation.gov.uk/ukpga/1993/48
2. Pensions Act 1995 — https://www.legislation.gov.uk/ukpga/1995/26
3. Pensions Act 2004 — https://www.legislation.gov.uk/ukpga/2004/35
4. Pension Schemes Act 2021 — https://www.legislation.gov.uk/ukpga/2021/1
5. The Pensions Regulator, DB scheme funding code of practice — https://www.thepensionsregulator.gov.uk

This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.

Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.