Final Salary Schemes Explained

Posted by genedumas on June 17th, 2013

Final Salary Schemes have been mentioned on the news quite a bit lately and it can all sound pretty boring if you’re years from retirement age and are more interested in what’s happening now than what’s happening in the future. All the jargon involved can make it quite hard to actually understand what’s going on as well, and it’s easy to push all thoughts of pensions aside because they’re not actually relevant to your life.

Stop! Think again – pensions are vitally relevant to your life if you plan to live long enough to give up work (and most of us do plan to do just that nowadays). We’re living longer and old is the new young. People of retirement age no longer get home from their last day at work and head for their slippers and a cup of cocoa, with nothing to look forward to but spending more time mowing the lawn. Older people these days seem to be having a great time – they travel, they eat out, do all sorts of sports and activities – retirement is starting to look life fun!

It’s not just about bingo and a weekly treat of fish and chips – retirement can mean going back to university (or, indeed, going to uni for the first time). Our later years really can be something to look forward to – the opportunity to do the things we missed out on when we were younger – a real second shot at life. The Golden Years really are starting to look like a rather pleasant prospect – oldies really do rock.

However, doing all these fun and interesting things costs money – and when you’re not earning money during retirement, you really don’t want to be reliant on the basic state pension. Yes, it’s an income – but you’d be hard pushed to have great fun on it. If you want to enjoy your retirement, then planning ahead is essential and it’s never too late or too early to start. Things are changing in the world of pensions, with new legislation that ‘s been designed to ensure that more people than ever in the UK have some sort of financial plan for when they’re older. With average life expectancy getting longer, there are more and more people in the UK dependant on a pension for their main income.

Basically a final salary (or defined benefit) scheme is based on how much you’re actually earning when you retire – the better paid you are, the higher your pension payouts will be. However, more and more employers in the UK are ditching Final Salary Schemes while some workers are choosing to “opt out” in favour of self-invested personal pensions (Sipps). If the recent news hasn’t prompted you to take more interest in your pension, now would really be a good time to start doing so. Things are changing fast in the world of employment – there are no “jobs for life” any more and we’re all expected to much more proactive in managing our careers. Doing some research online (including the recent news reports) is a great way to gen up on the very basics of final salary schemes and how changes in legislation could impact your financial future.