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