Defined benefit: Final salary schemes
Final salary schemes are a type of defined benefit pension scheme that are offered by employers. The benefits you receive at retirement are based on your earnings and your length of membership in the scheme.
How final salary schemes work
Many final salary schemes have either been closed to new members or to all members over recent years, although they are still offered by some, mainly larger, employers.
A final salary pension scheme is typically run, on behalf of the employer by the Board of Trustees, who is responsible for all aspects of the scheme. This includes paying benefits to retired members. Daily management of the scheme is typically done by the Scheme Administrator, who reports to the Board of Trustees.
A final salary scheme normally offers you an income in retirement based on a proportion of your ‘final salary’, although other factors can be taken into account. It’s important to note that ‘final salary’ doesn’t necessarily mean the actual salary that you’re earning at the time you retire and draw your benefits from the scheme.