Category: Defined Benefit (Final Salary)

What are Final Salary pensions?

A Final Salary pension (officially known as a defined benefit pension) is a pension scheme that promises to pay you a guaranteed pension from the day you retire, for the remainder of your life. The amount you are paid is based on your final salary; at the point you retire – which is why they are often called Final Salary pensions. The amount you receive year on year often increases in line with inflation, and there will most likely be a dependant’s pension payable on your death.

Are there different types of Final Salary Pension?

Yes, there are two main types of Final Salary pension.

1. The first is ‘Final Salary’ schemes. These are based on the amount that you are paid as a salary when you retire.
2. The second is known as ‘career average’ schemes. Career average schemes are based on your average salary throughout your career with the company.

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The recent coronavirus epidemic has many people wondering how it will impact their final salary (also known as Defined Benefit) pension. Provided your former/current employer manages to stay in business – your pension should be safe*, which is great news.

Public sector schemes, such as those for teachers, nurses or civil servants are also protected because most are funded by taxation. Because of this, they remain unaffected by movements in the stock market or companies going bust.

On the other hand, if you work in the private sector then your Final Salary pension is backed by a fund purposely allocated to pay your pension, along with your colleagues. That fund is controlled by a group of trustees who make decisions such as how best to invest it, along with how it should be managed.

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