Defined Benefit vs Defined Contribution Pensions

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

Defined Benefit (DB) schemes

Defined benefit schemes aim to provide a set level of pension and/or lump sum at retirement. The level of benefits depends on your service in the scheme and salary at retirement. Generally DB schemes in the private sector aim to provide employees with a pension of 1/60th of salary for every year of service to a maximum of 40/60ths. You may have the option to take a retirement lump sum and a reduced pension. Public sector schemes tend to provide retirement lump sums of 3/80ths of salary and a pension of 1/80th of salary for every year of service to a maximum of 40 years service.

Defined Contribution (DC) scheme

In a defined contribution scheme your employee contribution and the contribution paid by your employer are usually fixed as a percentage of salary. The contributions will be invested in a fund in order to provide your retirement benefits. DC schemes do not provide any guarantees, your benefits at retirement will depend on a number of different factors including contribution levels, fund performance, plan charges and the annuity rates available when you retire.

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