Pension Calculator

DC: current pot + contributions grow at your return (net of fees) to retirement, then income = pot × your payout rate. DB: annual pension = years of service × final/average salary × accrual rate (e.g. 1.5–2% a year).

Defined contribution vs defined benefit

A defined-contribution (DC) pension is a personal pot. You — and usually your employer, plus tax relief — pay in, it’s invested, and it grows until you retire; the size of your eventual income depends on how big the pot gets and the rate at which you convert it (an annuity or drawdown). A defined-benefit (DB) pension promises an income instead of a pot: a fraction of your salary for every year you’re in the scheme. DC carries the investment risk; DB carries far less, which is why DB schemes are now rare outside the public sector.

Worked example — DC: $50,000 pot, $500/month, 7% return, 30 years, 5% payout: The pot grows to about $947,000, giving roughly $47,400 a year ($3,950 a month). DB: 30 years × $60,000 salary × 2% accrual = $36,000 a year for life.

Lump sums, survivors and indexation

Most pensions let you take some tax-free cash. In a DC pot you take a lump sum (often up to 25%) and the remainder provides income; in a DB scheme you “commute” part of the pension — give up some annual income for a one-off sum at a set factor (commonly 12:1 to 20:1). A survivor option continues part of the pension to a spouse. And indexation is crucial: a pension that rises with inflation holds its value, while a fixed one quietly loses spending power every year — the table and chart show that erosion in today’s money.

Tax, the state pension, and the caveats

Contributions usually attract tax relief on the way in (modelled as a gross-up of your DC contributions), and pension income is generally taxable on the way out — enter a rate to see the after-tax figure. Add your state or government pension (Social Security, NPS/EPF, State Pension) to see total retirement income. These are estimates: DC results depend on uncertain returns and future annuity rates, and DB figures depend on your scheme’s exact rules (accrual, revaluation, commutation factors), which vary by plan and country. Check your scheme’s statement.