DB Pension- Tell me about them

[mishmased]

Pensions novice here. I live in Ireland have a DB career average pension and a DC Supplementary pension. What does that mean in the simplest terms?
For example:
5% employee contributions for DB pension
10% AVC matched by employer up to 5%. I understand the tax savings around pensions deductions but don't get 1/60th career average.
Anyone care to enlighten me please 😊 thank you.

1/60 career average DB pension. Let's say you earn 30k in a year. 1/60 x 30000 = 500. So now your pension when you retire will be 500 p.a.

Next year you earn 40k. 1/60 x 40000 = 667. That gets added to the 500, and now your pension will be 1167.

Every year, another 1/60 of your salary gets added to the pension amount you'll get when you retire.

Of course, you end up with less that that if you retire early.

The supplementary pension just goes into a "pot" which is invested, and when you retire you get access to that pot. (Some schemes let you take cash from the pot early, others don't, and I'm guessing the tax rules in Ireland aren't the same as the UK!)

Thanks @PhotoDad. That makes sense. Is the 5% employee contribution included in that 1/60th? How is this scheme better than the more common DC?

I imagine that your 5% contribution is what pays for the whole scheme! What you're paying for is security. If there's a stock-market crash just when you want to retire, your DC pot might collapse in value. (Some DB schemes also readjust the pension you'll get for inflation, too.)

https://www.moneysavingexpert.com/savings/discount-pensions/#need-9
some info on pensions from Martin Lewis.

Basically a DB pension means that when you retire, the pension you receive stays the same for as long as you live.
A DC pension means you put a certain % of your salary into your pension pot and it’s like a savings account. You end up with a set amount when you retire and can choose what to do with it.

Thank you so much. This makes a lot of sense.
So basically I cannot increase my employee contribution, just the AVC?
Will it be sensible to increase AVC contributions in accordance with pay rises? I pay lump AVC when I get my bonus pay as the rate for 40% in Ireland is so low (I think around 37k) and I would lose a lot if I didn't pay AVCs. On the plus side unlike the UK child benefit is a universal benefit for all households.
It is sort of a new financial year for me and I'm trying to understand what to do with money from a tax pov and to make sure paying AVC is more tax efficient than the mortgage as I would have to pay tax on the money I'm going to use to pay the mortgage.

@Soontobe60 thanks so but the pension interest rates will go faster due to compound interest unlike a savings account, is that correct? Interest in savings are rubbish here at the moment.

I'm going to bow out here as tax stuff is very specific to countries. You might want to look at how you would draw cash out of the DC pot after retirement in case it alters your sums (in the UK, only part of that is tax-free to avoid various scams involving moving money between pots). Good luck!

But I will add that the DC pension funds tend to be invested on your behalf in stocks and shares. These always outperform savings accounts in the long run but that's not a lot of use if you retire during a huge market crash.

Thanks so much @PhotoDad, you've given me a great base to work from. It should be much easier from here now.

Usually DB schemes are regarded as gold plated in terms of pension - that is they are the best you can get.

This is for several reasons:
You know what you will receive when you retire - dependent on your salary, the number of years worked and age of retirement. This is a very big advantage in terms of security and retirement planning.

It’s not subject to the highs & lows of the stock market.
Usually index linked - meaning it keeps pace with inflation.
It won’t run out as long as you live.

Usually offers other protections such as life assurance payment or pension for dependents or spouse, and ill health benefits if you become unable to work.
If it’s a public sector pension then it’s probably guaranteed by the state so very secure.

I will say I’m only familiar with UK DB schemes so there might be different arrangements in Ireland.