A final salary, or defined benefit, scheme provides benefits based on your salary at retirement or when you left the scheme. The amount of income at retirement is known in advance. If you leave the scheme before retirement, the pension will usually increase from the date you leave to the date you take your benefits. You may pay contributions to a final salary scheme and it is sponsored by an employer who pays the balance of the cost of providing the benefits. Final salary schemes often provide benefits for your spouse and dependants, after your death.
The income from a final salary scheme is largely guaranteed and is not dependent on fund values or market conditions when you retire. Even if the employer is no longer able to support the scheme, you will receive most of your benefits from the Pension Protection Fund. The Pension Protection Fund was established by Government to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation (usually 90% subject to a benefits cap). More information about the Pension Protection Fund is available at http://www.pensionprotectionfund.org.uk/Pages/homepage.aspx
Benefits from final salary schemes should not be given up lightly as they usually provide valuable certainty about your retirement income. If you want to consider transferring your final salary benefits to access the new options, the legislation requires you to take independent financial advice first. Any final salary scheme will need to see evidence of this advice before allowing you to transfer.
The information on this page is provided in good faith but is not legal or financial advice or binding on the Trustee. The trust deed and rules will override in the event of any inconsistency.
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