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Final salary pensions promise a guaranteed income for life based on your salary and years of service, making them one of the most secure types of pensions.

The pension is calculated using a formula, typically:

Annual Pension =Years of Service x Accrual Rate x Final Salary.

Common accrual rates are 1/60th or 1/80th of your final salary for each year of service.

Payments often increase annually, usually linked to inflation measures like the Retail Price Index (RPI) or Consumer Price Index (CPI), although some schemes cap increases.

The employer is responsible for funding the scheme and bears the investment risk.

If the scheme faces a shortfall, the employer must make up the difference (unless the scheme winds up or the employer becomes insolvent).

Most defined benefit pensions allow you to take a tax-free lump sum at retirement by giving up a portion of your annual income.

The conversion rate is typically 12:1 or 15:1 (e.g., £1 pension income = £12 lump sum).

Early retirement may be possible (e.g., at 55), but your pension will often be reduced to account for the longer payment period.

Example: A 4-6% reduction per year if you retire before the scheme's normal retirement age (usually 65).

Most schemes provide a survivor’s pension for a spouse, civil partner, or dependent after your death, usually a percentage (e.g., 50%) of your pension income.

If your employer becomes insolvent and the pension scheme cannot pay benefits, the PPF provides a safety net.

Members below retirement age get up to 90% of their entitlement, capped at around £45,000 annually.

Retirees typically receive 100% of their benefits.

You can transfer a defined benefit pension to a defined contribution scheme (e.g., a SIPP), but:

Transfers are irreversible and can result in the loss of guaranteed income.

Transfer values (CETVs) are often 20-30 times the annual pension but depend on factors like interest rates.

Financial advice is mandatory for transfers exceeding £30,000.

Final salary pensions are increasingly rare for new employees due to their high cost to employers.

Many schemes have been closed to new members or future accruals, replaced by defined contribution pensions where the employee bears the investment risk.