Final Salary Pension Schemes

updated: January 22, 2010

These notes have been produced in response to the growing concern among some of our clients about the security of the benefits that they have in their employer provided ‘defined benefit’ pension schemes, which are commonly referred to as ‘final salary’ schemes.

Although such pension schemes are used in both the public and the private sector, it is to members of final salary schemes in the private sector that these notes are addressed.

Although final salary pension schemes in the public sector are also under pressure (note the recent proposals to change the NHS pension scheme from a defined benefit to a defined contribution basis), there is not the same level of concern over the security of benefits that have been earned to date.

Traditionally employers have provided pensions for employees that have a known amount of pension and other benefits. These are ‘defined benefit’ schemes. That is, what you as an employee can expect to receive is defined as a percentage of your ‘final salary’ for each year of membership in the scheme.

The great majority of employees in the private sector will not get pensions that will be linked to their salary. In 20 years there will be relatively few employees in the private sector retiring with pensions based on their final salary. In 40 years time there may be virtually none.

To obtain further information please click here for our pdf Guide to Final Salary Pension Schemes.