Final salary / defined benefit pensions
A final salary pension, also known as a defined benefit pension is usually provided by employers in which the pension they will pay you is determined by your last salary when retiring.
The decision to transfer your final salary pension scheme is certainly not for everyone and there are a number of risks to be aware of before going ahead. As such it is incredibly important to seek professional advice from a pension specialist who can assess your situation and guide you through all possible outcomes.
Here at Rego Wealth we have a qualified and experienced team on hand to do just that. Below is further information on what a Final Salary Pension is.
- A form of workplace pension, meaning if it is not offered by your employer you will be unable to receive one elsewhere.
- Based on your earnings and length of membership in the scheme, the amount of money is a pre-calculated figure, meaning by using one of these schemes you are guaranteed to receive the figure decided.
- Different schemes work in different ways – so you should always be clear on how your scheme works.
- Benefits at retirement may be provided as an income or as a tax-free cash lump sum and an income.
- Once you have retired, you will then receive this confirmed income for your remaining life.
- Pension benefits may also be available to dependants in the event of your death or they may be paid early if you fall ill before reaching retirement.
- Benefits may increase each year to offset the effects of inflation.
In addition to your final salary before retirement, the amount you will earn from your final salary pension is determined by a number of factors including how long you worked for the company providing the pension scheme as well as the time you have been contributing to the scheme. The figure will then be calculated using the time you were part of the scheme using the accrual rate. These rates are typically 1/60th, 1/80th, or 1/100th of your last salary.
The majority of these pension schemes offer the common retirement age of 65 years old, however some schemes may allow you to retire from 55 although this may decrease the amount of money you receive. It may also be possible for you to obtain your entire pension in one whole sum, however you will have to pay tax on the majority of the money. To do this, you have to be at least 55 years old and all of your pension savings have to be less than £30,000, with the pension alone being less than £10,000.