A final salary pension provides a retirement income for life which is based on your salary and service period.

The final salary pension scheme is also known as a defined benefit pension scheme.

 

A final salary pension provides a retirement income for life which is based on your salary and service period.

In a final salary pension, your income is calculated according to your pensionable earnings and the number of years that you have been a member of the scheme. Your employer / former employer carries the investment risk.

 

How does a final salary work

Contributions are paid into the scheme by both employer and employees. All contributions effectively go into a pot with other members of the same scheme. You do not have your own individual fund value as you would in a defined contribution scheme. This ‘pot’ is invested on your behalf by the trustees of the scheme.

While you have no control over your funds or where they are invested, you are protected from falls in the stock markets because your company must make up any shortfall. This is because the company takes all the investment risk. Irrespective of the performance of the investments, you will receive a pension based on your salary and service. This is a pension paid for life, and provides a great deal of security. 

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