In the past, many people who worked for private firms built up a company pension based on how long they had worked for the firm and how much they earned. The amount of pension they would get was guaranteed by the rules of the pension scheme, and so they were known as defined benefit or DB pensions. These defined benefit pensions have a number of advantages.
• Your pension lasts as long as you do, so you don’t run out of money.
• There is something for a surviving spouse after you die. The details vary from scheme to scheme
• There is some measure of protection against inflation, which helps to maintain the spending power of your pension (varies from scheme to scheme)
• Your pension is unaffected by the ups and downs of the stock market.
Despite all of these advantages, there are some downsides to having a pension of this sort, such as a lack of choice over when and how to take your pension.
So, growing numbers of people are considering whether to exchange their DB pension rights for a cash equivalent.