Defined Benefit vs Defined Contribution Pensions

What's the difference?

Occupational pension plans (company pensions) in Ireland can generally be described as either defined benefit or defined contribution.

Defined benefit schemes

In a defined benefit scheme, the pension you are entitled to at retirement is defined in some way by reference to your earnings and your length of service. So you know in advance what your pension will be. For example, half of your final salary if you have 40 years service or that it will be a certain amount each week.

Defined contribution scheme

In a defined contribution scheme, the pension you receive at retirement is dependant on the value of the fund you have accumulated to that point, subject to limits. The contribution is fixed by agreement with your employer. So depending on the scheme in place, you may agree to pay a certain percentage of your salary into your pension, and your employer may agree to contribute a certain amount, but the benefits are not fixed in advance.