Company Pensions: Final Salary schemes
The 'Final Salary' bit.
With a final salary scheme, the pension you receive at retirement is directly related to your final salary before retirement. This is a benefit because it means you will have a very good idea of what your pension income will be before you actually retire.
A final salary scheme can pay up to two thirds of your final salary when you retire, up to a maximum of £102,000. It can also provide a tax free lump sum at retirement, up to a maximum of one and a half times your final salary. Taking the lump sum will normally reduce your pension.
Benefits included
Many final salary schemes have a host of additional benefits such as death in service benefits of up to four times annual salary. Widow's and dependent children's pensions, known as death in retirement benefits and often long term disability benefits are all in addition to the salary related pension already mentioned.
Many companies increase the actual pension payments by approximately 3-5% per annum. This alone is a very valuable benefit that would be costly with a money purchase type scheme.
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