So, you’ve got a defined benefit (DB) pension but you’re wondering just how much value it brings compared to other workplace savings vehicles like a defined contribution (DC) pension plan. Look no further, we’ve got the answers you need. Although DB and DC are both workplace pensions, they are very different. In this article, we’ll explore those attributes and showcase just how unique your DB pension is in helping you plan a secure tomorrow.

Retirement Income

The biggest difference between a DB and a DC pension plan is what you get. With a DB plan you get secure retirement income, paid every month for as long as you live. With a DC plan provides you with a savings balance at retirement and you have to figure out how to make it last your whole life.

With your DB plan, your pension is based on a formula that gives you predictable monthly pension payments for life. The amount of pension you receive from a DB plan in retirement doesn’t depend on market fluctuations. On the other hand, with a DC plan you won’t know what you will get in retirement because it’s based on your contributions and its performance in the market. And when the markets are volatile, your nest egg could shrink.

Contributions

In a DB plan the member and their employer make contributions which are then pooled in the pension fund and invested by experts. The member’s pension is paid from this fund. With a DC plan, contributions are made to an individual account managed by the member. These contributions could be required or voluntary. The eventual payout is a combination of the contributions and any growth it made in the investment market.

Investment risk

In a DB plan the member’s investments are managed by expert investment professionals focused on mitigating risks so your pension stays secure and continues growing for the long term. In a DC plan, each member is responsible for how their contributions are invested and ultimately bears any risks that result from their decisions.

Additional benefits

DB plans can offer valuable extras like inflation protection increases and survivor benefits, often at no additional costs to the member. With a DC plan, the member could use their balance to buy an annuity, and would have to pay extra for these additional benefits, biting into their retirement income and reducing their final pension amount.

All workplace pensions are important. But what makes your CAAT DB plan stand out is the fact that you can rest easy knowing your retirement income is secure and for life.