What is a final salary pension?
A final salary pension scheme, also known as a defined benefit pension scheme, is historically the most common scheme offered by employers.
On leaving employment, the final salary scheme will calculate your pension at the date of leaving, usually based on the number of years that you were an active member and your final salary. There is often a misconception that this pension is “frozen”. However, this is not the case as the pension at date of leaving will increase each year between the date of leaving and the scheme retirement age. This increase may be in line with inflation, the lower of inflation and a fixed percentage, a fixed percentage or the National Average Earnings Index. It may even be a combination of all of these!
On retirement, an annual pension will become payable, which will usually include provision for a spouse’s and/or dependent’s pension in the event of your death. This pension will usually have guaranteed increases in payment. There is also an option to forgo some of the annual pension for a tax-free lump sum and a reduced annual pension.
The main benefit of a final salary pension scheme is that your pension is not linked to investment returns or annuity rates. There are “guaranteed” increases both pre- and post-retirement.
How we can help
At Bartholomew Hawkins, we have the expertise and Financial Conduct Authority (FCA) permission to analyse your final salary scheme. On your written authority, we approach the administrators of your pension scheme and obtain a Transfer Value quotation.
We then carry out a detailed analysis of your final salary scheme including the option of transferring to a personal pension arrangement. We will discuss all the options available to you, as well as the potential risks of any course of action, before agreeing a proposal to best suit your individual needs.
We are specialists in pension planning with three members of the team holding the (G60) Pension Planning qualification*
Does your final salary pension need to be reviewed?
In many cases you are likely to be worse off if you transfer out of a final salary pension scheme. This is because the guarantees offered by such schemes are extremely valuable, especially at times of low investment returns, low gilt yields and longer life expectancy. However, some individuals find that transferring to a bespoke personal pension arrangement is more suitable for their individual situation.
If any of the following apply to you, please contact us to arrange a review of your current scheme and benefits:
- You want control over how your pension assets are invested and how and when the benefits can be paid
- You are single, divorced or cohabiting
- You want to increase your tax free lump sum at retirement
- You are in poor health with a reduced life expectancy
- You own a business and are looking to purchase premises
- Your accrued pension is valued above £1.5 million
Retiring soon? We can help you explore your options
You don’t have to draw benefits from the scheme that you currently have – there are other options available to you. See our ‘Your Final Salary Scheme at Retirement’ page for more information.
*Our team members who hold the G60 qualification are able to evaluate and recommend appropriate solutions for our clients based upon detailed understanding and analysis of the:
- HM Revenue & Customs tax regime for pensions;
- Legal framework of pensions;
- Features and risks of defined contributions and defined benefit pension schemes;
- State retirement benefits;
- Choices facing early leavers, transfer value analysis and transfer advice;
- Various options for drawing income – their features, risks and tax treatment;
- Different needs and solutions available to personal and corporate customers.
