Let's compare two individuals: one with a Defined Benefit (DB) pension (e.g., a teacher), and one with a Defined Contribution (DC) pension (e.g., a private sector employee).

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Meet Our Two Workers

Person	Job	Pension Type
Sarah	Secondary School Teacher	Defined Benefit (DB)
James	Marketing Manager (private sector)	Defined Contribution (DC)

Both:

• Work from age 25 to 65 (40 years)

• Earn £35,000/year on average over their career

• Receive the full State Pension (currently ~£11,500/year)

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Sarah's DB Pension (Public Sector - Teacher's Pension Scheme)

Typical formula:
1/57th of average salary - years of service

So:
£35,000 - (40 - 57) = £24,561/year DB pension income

• £11,500 State Pension
  = £36,061/year total income in retirement (inflation-linked)

Guaranteed for life
Adjusted annually for inflation
No investment risk

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James DC Pension (Private Sector)

He and his employer contribute 8% total of salary each year:

• £35,000 - 8% - 40 years = £112,000 contributions

• Let&'s assume 5% annual investment growth, Pot grows to ~£260,000 at age 65

Using a conservative annuity rate of 4%:

• £260,000 - 4% = £10,400/year pension income

• £11,500 State Pension
  = £21,900/year total income in retirement

Not inflation-proof unless he buys a costly inflation-linked annuity
Risk of running out of money if he lives long
Subject to market ups & downs

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Summary: DB vs DC in Real Money

Feature	Sarah (DB)	James (DC)
Private Pension Income	£24,561/year	£10,400/year
State Pension	£11,500/year	£11,500/year
Total Retirement Income	£36,061/year	£21,900/year
Guaranteed?	Yes	No
Indexed to Inflation?	Yes	Optional (expensive)

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Over 25 years in retirement:

• Sarah (DB): £36,000 - 25 = £900,000+ (inflation-adjusted!)

• James (DC): £21,900 - 25 = £547,500 (flat)

Thats a £350,000+ difference, not accounting for inflation protection or lifespan.

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Alright, let's see how things change for James (DC pension) if he:

1. Invests more aggressively

2. Retires later (at age 68 instead of 65)

Assumptions Recap (Base Case)

• Salary: £35,000

• Contributions: 8% of salary for 40 years = £112,000

• Retirement age: 65

• Growth rate: 5%

• Pot at retirement: ~£260,000

• Annuity rate: 4% -> £10,400/year

Scenario 1: More Aggressive Investing (7% average return)

Lets assume James still retires at 65, but aims for a 7% average return (reasonable with long-term equity investing).

• Estimated pot at 65: ~£420,000

• 4% annuity, £16,800/year

• • State Pension: £11,500
    = £28,300/year retirement income

Better, but still £7,700 less than Sarah (with her DB pension)

Scenario 2: Delays Retirement to Age 68

Now assume:

• James contributes for 43 years instead of 40

• He still earns 5% investment returns

• Shorter expected retirement = cheaper annuity

His pot:

• Grows from £260,000, ~£310,000

Annuity rate for age 68 is higher: ~5.2%

• £310,000 - 5.2% = £16,120/year

• • State Pension: £11,500
    = £27,620/year

Closer to DB level, but:

• He worked 3 years longer

• Still less predictable income

Scenario 3: Invests More + Retires Later

• 7% return for 43 years -> Pot = ~£520,000

• Annuity at 68 (5.2%) = £27,000/year

• • £11,500 State Pension = £38,500/year

Now James slightly overtakes Sarah, but only by:

• Investing aggressively

• Working 3 extra years

• Taking on all market risk himself

Summary Table