Final Salary

Final salary schemes are a type of defined benefit scheme. Your employer may run one to give you a retirement income.

Although your employer supports the scheme, in most cases a board of trustees runs it. The trustees are responsible for paying retirement and death benefits.

You contribute to the scheme and it promises you a certain amount of pension at retirement.

The amount of pension paid to you depends on the following:

  • Your earnings close to retirement
  • The length of time you have been in the scheme
  • The rate at which your pension benefits builds up - your scheme's accrual rate.

Your Earnings will be determined by the rules of the scheme. They will probably be your salary at retirement, but some schemes may average the last few pay periods to avoid pay fluctuations (i.e from overtime). Your pension will be a proportion of your Earnings depending on your length of time in the pension scheme and the Accrual rate your pension scheme uses. The most common accrual rate is 1/60. You will get 1/60th of your final pensionable salary for each year you complete. (In some cases, this will be worked out in complete years, in others years and months, or even years and days).

As an example: If your yearly earnings at retirement is £20,000, and your schemes accrual rate is 1/60th and you have been in the scheme for 30 years, your pension would be ..
£20,000 Earnings * 30 years’ service * 1/ 60 years accrual rate = £10,000 pension pa 
If you are evaluating your pension, we strongly advise that you seek professional advice from a fully qualified and regulated Independent Financial Advisor. Pension decisions are usually a major financial decision that requires the appropriate level of advice to make the right choice. In contrast, mistakes can be costly.To arrange for a no obligations, initial free telephone consultation click here.