Final Salary Pension Schemes
With a final salary pension scheme you accumulate, through years of service, a guaranteed pension at retirement, with the guarantee supported by the principal employer.
The pension you receive at retirement is related to your pensionable final salary before retirement and the number of years reckonable service you have with that particular employer. A pensionable final salary in the years just before retirement is often calculated by averaging the employee's earnings in the last few years, although other definitions are used such as career average.The resultant salary amount calculated for pension purposes is then multiplied by the number of years of membership in the final salary scheme. This figure is then divided by the schemes accrual rate (commonly 1/60ths or 1/80ths) to work out the retirement benefits before any tax free cash. This method of calculating retirement benefits can secure a very good pension for the rest of an ex-employees life.
Upon retirement pension benefits are secured in accordance with the scheme basis, possibly with the provision for a spouse or dependants pension, inflation proofing or escalation of income and the payment of a Tax free lump sum, which can greatly help in those early years following retirement when a former employee retires and experiences a drop in salary.
These schemes proved very popular with employers and employees, however over recent years the cost to provide such schemes has more than doubled because of government legislation, lower interest rates, taxation and people just living longer. This has led the majority of employers to reduce costs by closing their schemes entirely or just to new members, or reducing benefits.
We can assist employers, members or trustees in their considerations and deliberations in what can be a difficult time. Even if the scheme has been closed we can assist in reducing administration costs or assisting in reviewing the schemes investments. This assistance is based on our considerable experience with these schemes, our personal training and qualifications contact us or our sister Independent Trustee company.
Other useful sources of information:
Financial Assistance Scheme
Pension Protection Fund
Pensions Regulator
Pensions Service - tracing pensions