Final Salary Schemes

Currently, final salary is the most common form of occupational defined benefit scheme (see Occupational Defined Benefit Schemes). You will receive an annual pension which is a percentage of your 'final salary' with your employer. Your 'final salary' may vary depending on the way in which your employer makes their pension calculation. You may have to contribute to the pension scheme but the size of your pension fund when you come to retire will not affect the annual pension you are entitled to receive: this will be agreed when you sign the scheme contract initially.

You may choose to reduce the annual pension to which you are entitled by claiming a tax-free lump sum on retirement; this will mean that you receive less annual pension than you would have done had you refused the lump sum. You will be entitled to receive an annual pension until you die, and the value of the pension should be increased in line with inflation to ensure you still have adequate funds to live on. Final salary schemes are very expensive for employers, and so they may be offered to employees less frequently than other pension schemes in the future.

For details of the annual pension you can expect to receive from your final salary scheme, see How much will I receive?