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July 21, 2025
Understanding Your Defined Benefit Pension Scheme
This piece is intended as an explainer for Irish employees and retirees who are or were members of a Defined Benefit pension scheme.
If you’ve ever looked at your pension statement and felt more confused than reassured, you’re not alone!
To give them their dues, pension trustees try to present the information in an understandable way, I’ve had many conversations with folks who are unsure about what their Defined Benefit (DB) pension really means for them. They have usually always been told that it’s valuable, but beyond that.....many miss some key aspects.
So today, we’re stripping away the jargon and shining a light on DB pensions; what they are, why they matter, and how to understand your scheme better.
Whether you’re planning decades ahead or retirement is peeking over the hedge, this is hopefully a helpful piece.
A Defined Benefit pension is a retirement scheme that pays you a guaranteed income for life. That income is based on your salary, years of service, and a formula set by the scheme - not on the ups and downs of the markets. We've spoken about this a few times, check one of our pieces out for more info here.
Put simply: it’s a promise of future income, not an invested pot of money you own.
These schemes were once common across Irish private companies, but most are now closed, to new entrants and/or to existing employees.
However, DB pensions remain the default for many public sector workers: teachers, nurses, Gardaí, civil servants, local authority staff, and some lucky private sector employees still in legacy schemes.
Lets first explore some basic steps to getting to grips with your scheme. And this applies whether you are a current member of a scheme, or if you have left the scheme and have left the DB scheme as it was (ie not transferred-out to a PRB/PRSA etc).
The first thing you’ll want is your Annual Benefit Statement. This typically comes once a year (usually around your birthday or scheme year-end) and outlines your benefits to date (accrued), as well as projections for future benefit if you remain an employee and of the scheme up to your normal retirement age of 65 for many schemes.
Where to look:
If all else fails, ask HR. But on the basis that you receive a statement each year, you're point of contact will be noted on that.
Important reminder here; be sure to save the statements in a secure location/electronic storage where your loved-ones can access them. This makes it easier for you to access them any time, but also for your loved-ones should you die or run away!
These statements aren’t always the friendliest read, but here are four things to find and understand:
1. Your Annual Pension at Retirement
This is the income you’ll receive every year for life. It might be called:
This section intends to let you know what amount of retirement income you have 'banked' via the scheme already.
For example:
'€28,500 p.a. payable from age 65'
That’s €28,500k 'guaranteed income' per year, before tax, for as long as you live.
Is that example of €28,500 per year a valuable 'asset' to have (assuming you survive!)? Bloody sure it is.
Keep reading for more!
2. Any Lump Sum
Most Irish DB schemes offer a tax-free lump sum on retirement. This may be:
In many cases, the maximum tax-free lump sum is 1.5 times your final salary, where you have service of 20 years of more, and subject to lump sum/salary caps under Irish Revenue rules.
See: Revenue.ie – Tax Treatment of Pension Lump Sums
3. Your Normal Retirement Age (NRA)
This is when your DB pension typically begins, usually:
You can often retire earlier, but your pension may be reduced if you do.
Some public servants may also benefit from "fast accrual" options (for uniformed public servants such as Gardaí or fire service).
4. Service Years
Your pensionable service is the number of years you’ve contributed to the scheme.
This is vital as it’s a key part of the formula that calculates your pension.
More years = more income!
Here’s the kicker: a DB pension might be worth more than your home; seriously.
Simple rule of thumb:
Multiply your expected annual pension by 20 to 25.
For example:
In simple terms; If we work on the basis that one might expect/hope to live to 90 years of age, your statement is showing you that you'll get 25 years of €28,500 per year. This equates to over €460,000.
Another way of looking at it is this.....
If you didn't have a Defined Benefit scheme, and instead has a Defined Contribution scheme and wanted to buy a single Annuity (at current rates) to generate €28,500 per year, you'd need to have a pension pot now at 65 years of age, of at least €550,000.
So the illustrated €28,500 defined benefit income is worth over half a million in real world terms right now.
That’s real peace of mind, and that's a significant value.
This is why transferring out of a DB pension is a big decisions....more on that below.
Beyond the regular 'guaranteed' income, you’re getting a potentially powerful bundle of benefits:
Inflation Protection
Most Irish DB pensions rise annually in line with CPI or a capped rate - typically 2% to 4%.
This aims to protects your purchasing power, especially over 20-30 years of retirement!
Spouse’s Pension
In many Irish DB schemes, your spouse or civil partner will receive half or two-thirds of your pension income if you die before them in retirement. Check your scheme rules or ask HR for exact details of the spouses benefits.
No Market Risk
The scheme carries the investment risk, not you (hence why many have closed!).
Regardless of stock market crashes or interest rate swings, your pension is locked in.
Professional Management
You don’t need to make investment decisions. No need to rebalance funds or give any headspace about running out of pension pot in retirement (assuming the scheme is systemically solid).
My starting point is always 'No'.
Some employers and schemes, in an effort to reduce liabilities and future exposure will offer a Transfer Value to members to get rid of them from the DB, or they'll simply close it. The Transfer Value is known as a 'TV' and is also called a 'CETV' for Cash Equivalent Transfer Value.
Taking a TV means:
When a person comes to us for assistance on their 'exit strategy' from employment, often a DB scheme will form part of their current of past employments. When we do a root-to-branch analysis and plan of their assets, liabilities and generation of future income, the DB needs to be part of that of course.
Two recent cases comes to mind from earlier this year - where there were 2 different decisions made, for different reasons. It may be helpful to share some of the rationale and considerations as to whether to retain one's DB or not.
Case A: This person had accumulated many years' service with an employer, and had accumulated 6-figure DB income. They were at the point where they were financially independent, were leaving employment, and were unsure if they would re-enter the workforce in future. They were offered a generous Transfer Value on the Defined Benefit scheme. The financial implications of retaining the DB or taking the TV were marginal, based on prudent long term planning assumptions. The decision to retain the DB, start drawing the DB income was driven here primarily by the psychological safety of having that guaranteed income for the rest of their lives (assuming the very solid position of the scheme continues). The numbers, estate implications, income differences were important to assess, undertstand and consider, but the driver was the psychological safety and removal of fear. I 100% backed that decision for that client, and support them as they enjoy the next chapter :)
Case B: This person had again accumulated many years' service with a former employer, so they were former members of a DB scheme. They were getting annual updates on the future income they would get from the scheme, and again, it was a large annual income if they remained in the DB. The TV was again generous for them. We assessed the numbers, timings, estate planning, future priorities and potential future outcomes of various outcomes. This person's priority, given other incomes they have was less-so the income from the DB scheme, and moreso the maximisation of the value and potential future value to their beneficiaries. The decision to take the Transfer Value here was a big decision which we took several months to arrive at, but on the basis of their priorities and probable outcomes, was the right decision. Indeed, since doing so, they have experiences significant market movements (thanks to 'yer man'), but have already achieved solid returns to make it that little bit sweeter!
The decision to exit a Defined Benefit scheme is a big one, and as the above hopefully conveys, needs to consider many aspects of ones current and future financial and indeed non-financial life and priorities.
Pension scams and leadings sales tactics are alive and well in Ireland.
While not all will be scams, many providers and firms out there advertise catchy slogans and offers, often leading people to make decisions that turn out to be less than fantastic. Keep an eye out, and take your time around any decision, particularly where you see...
And always use regulated and insured advice firms.
Check any advisor on the Central Bank of Ireland register.
In Summary
After reading this, you should be able to say:
“I have a Defined Benefit pension that will pay me €X per year from age Y. Even if I left or was booted-out today that’s worth about €Z in today’s money.”
If that’s the case; well done. You’re in a fortunate position.
If you still feel unsure, consider speaking to a qualified Financial Planner, one who’s insured, recommended and regulated!
There are firms out there who specialise in public sector pension planning (not us!), and others that specialise in the private sector and business owner planning (us!).
Our pension is one of the most valuable financial assets we’ll ever own. Hence I encourage you to understand it, appreciate it, and protect it.
I hope this helps.
Thanks,
Paddy Delaney QFA RPA APA
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Informed Decisions are one of Ireland’s only remaining independent financial advice firms. We specialise in retirement & investment planning for successful individuals, so that our clients only have to retire once.
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