A final salary pension scheme uses contributions to invest in the stock market with no risk to the employee. You'll receive a fixed amount based on your salary when you retire, along with other benefits for your dependants.
A final salary pension, also known as a defined benefit pension, is a pension scheme that pays out a guaranteed amount when you retire. During employment, you and your employer's contributions are invested in the stock market, but the payout upon retirement is fixed so there is no risk to the individual.
Your pension income in these schemes increases over time, sometimes linked to Retail Index inflation. With more people living for longer, these pension schemes are not as easy to find as they once were.
Final salary pensions provide guaranteed retirement income with no investment risk to the employee, making them highly valuable pension schemes.
Key aspects of final salary pensions you should understand
You can usually access your final salary pension if you retire at the age of 55 or later. However, the final salary pension amount will be reduced. In most cases, the annual pension payment at 55 could be around 50% of what it would be if you did not retire until 60-65. Most policies will not allow you to draw your final salary pension before the age of 55.
If you are forced to take early retirement due to ill health, you will receive the full final salary pension. You will need to provide evidence that ill health has forced you to retire.
If the worker dies before reaching retirement, their partner, spouse and/or dependants will receive death-in-service payments. This is one of the main benefits of using a final salary pension. If the individual dies in the early years of retirement, some providers of these pensions will pay a larger lump sum to the dependants as well.
Individuals may be able to transfer their final salary (defined benefit) pension to a defined contribution pension. If your pension value exceeds £30,000, regulated financial advice is required before any transfer can proceed. The Financial Conduct Authority highlights that such transfers should be approached with caution.
Wealth Genius does not provide defined benefit transfer advice. Where appropriate, we can refer you to a suitably qualified specialist adviser authorised to advise on these transfers. Transferring a final salary pension means giving up guaranteed benefits and future income. This decision may not be suitable for everyone and should be carefully considered based on your individual circumstances.
Important: Transferring out of a Final Salary scheme/Defined Benefit Scheme is unlikely to be in the best interests of or be suitable for most people.
Some people wish to transfer away from their final salary pension out of fears that their pension provider will go bust. However, there is protection and assurances to ease these worries.
Since 2005, the Pension Protection Fund (PPF) has ensured that pension holders receive compensation for their pensions. As of 2025, the previous compensation cap has been removed following a court ruling, meaning there is no longer a set maximum amount that can be paid out to PPF members.
If you think you have a final salary pension but can't find the documentation to locate it, you can search for it with the help of The Pension Tracing Service.
0800 731 0193
