How to compare defined benefit and defined contribution pensions when changing jobs?

[FishMouse]

I'm considering applying for a new job, a step up with a small increase in pay after tax, a week's extra annual leave and cheaper parking. However, my current job has a defined benefit pension and the new job has a defined contribution pension. How can I compare the two?
Employer contribution rate is 18% of salary and I pay 8.5% for the DB in my current job. The new job max employer contribution is 10%, if I pay 6% or more of salary, for the DC scheme.
Obviously the employer contribution is less, I've worked out in cash terms it pretty much cancels out the pay rise, which I'm ok with, as I won't be worse off, and my contribution rate will be lower.
But is my current employer contribution into the DB scheme worth more than the cash value, as it's into a DB scheme not a DC? And how do I quantify it?
I really need my pension as my mortgage runs into retirement. I just don't want to be too risk averse. I'm 51.

There's another thing I didn't factor in. If I take lump sums from the DBs the annual pensions will be less, so I'll need to do some more workings. Potentially it could be enough to pay the mortgage off, I think.
And that would make a big difference to living costs.

Join the LGPS information and advice group on Facebook. There are experts on there who are very helpful.

A general rule of thumb is you need a 20-30% pay bump to offset the loss of a DB scheme for a DC scheme.

Can you give more details as to the pay bump and what the DB scheme offers?

With DC you can run out of money. With DB you never run out of money. Eg let’s say your DC pot is £100k when you retire, that £100k has to last you until you die. It might not last that long. With DB, you’ll have a ‘pot’ but the pension scheme will tell you that your pot it £100k so that buys you a guaranteed pension of (let’s say) £8k per year.

*numbers all made up.

Anyway, you can probably tell that it’s way easier to budget with DB because your money will never run out. As you’ll have a combination of the two, it’s a little easier but I personally would never move to an employer with a DC pension. I’m a public sector lifer.

I moved from NHS / DB to private / DC. It wasn’t an easy decision to make, but I’m happy with it overall 🙂.

Oh, and it can actually be quite helpful from a flexibility point of view to have both DB and DC pensions.

My understanding is that they don't REALLY put 18% into your DB pot - that's just an indicative figure they give you so that you can do this comparison.

You could also use annuity rates as a super rough way to compare. Tot up what you would contribute into the new pension between now and retirement, applying an annual growth rate (5% is often used, my pension provider uses 7% for projections at the moment). Then see what that would buy you in an annuity (google says typical single life annuities at the moment are £4-5kish per £100k saved for an index-linked annuity - your DB pension will be index-linked so you need to get that comparison right). There's a lot of variables in there, so it won't be a perfect match, but it is a useful guide.

Just to add, you don't HAVE to buy an annuity with a DC pension pot, and in fact a lot of people prefer not to because rates have been pretty low for a long time now and if you keep managing your pot yourself, it can still grow with dividend and investment growth, so often annuities are not the best choice. I'm just suggesting to use it as a very rough indicator for these purposes.

Thanks, I hadn't realised an annuity is not the only way to get an income from a pension. No clue about investing, well a bit more of a clue now!