Defined benefit (DB) schemes
A defined benefit, or DB, scheme is a pension scheme where the pension benefits that become payable at retirement, death or medical retirement are 'defined' in relation to final salary and years of reckonable service (that is, the periods of service that count towards the pension). They are the best schemes because the level of benefit is known and fixed. They provide certainty about the level of income in retirement that the member and their dependants can expect. The BTPS is a defined benefit scheme. For service from April 2009 the BTPS is a career average scheme.
Between the contributions being made and the earned pension being paid to individual scheme members, the contributions are invested in a range of stock market vehicles so as to increase the size of the resources available to the scheme out of which to pay pensions. With a fund size totalling £34bn, the BTPS is currently the biggest private occupational pension scheme in the UK. The assets are managed and invested on behalf of the BTPS by Hermes, an institutional fund manager independent of any broader financial services group but which is nevertheless owned by the BTPS.