What is a final salary scheme?
A final salary scheme is a type of defined benefit scheme. In a final salary scheme, your pension is based upon your ‘final pensionable salary’ in the years immediately before you take your pension. Different schemes use different definitions, so the definition of your ‘final pensionable salary’ (or ‘final pensionable earnings’) is important in this type of scheme. Find out what benefits are provided by a Final Salary scheme. Only by understanding the type of scheme you are in can you be aware of issues, such as security, ‘guarantees’, flexibility and personal control.
A Final Salary Scheme is a type of Defined Benefit Scheme in which members are paid a proportion of their salary on their retirement. The Final Salary Scheme pension you receive will be a set percentage of your final salary depending on the length of your service within the company. The amount is often calculated as a sixtieth of the salary multiplied by the years of service. The risk of the final salary pension scheme will lie with the employer in their commitment to deliver you with a pension at retirement, regardless on their return on their investment.
