What You Get Out

The better schemes offer you a pension which is a proportion of your final salary. Normally, they pay you one eightieth or one sixtieth of your final salary for each year you have been in the scheme.

So after forty years' service you will get a half (forty eightieths) or two thirds (forty sixtieths) of your final year's earnings. As some people find that their earnings go down in the year or so before retiring, some schemes allow you to choose the best of your final few years.

The pension you receive on retirement may well be fixed at that level forever. Alternatively, it may be increased in line with inflation or by a fixed annual percentage, usually 6% or 9 %. Civil service pensions and those paid to all other public servants, such as NHS workers, teachers, firemen, local authority workers and those employed by nationalized industries, all go up in line with inflation.

In the private sector such generosity is rare. Indeed, not many pension funds could afford it.

The Citizens Advice site is a useful resource at http://www.adviceguide.org.uk/england/debt_e/debt_pensions_e/debt_types_of_pension_e/personal_pensions.htm

For people who remain in one pension scheme all their working life, these final salary schemes can provide very good pensions.

But if you leave your job before retirement age, you are not treated so well. In the past you could simply lose all your pension rights. You were given back your contributions, less a deduction for income tax. But you did not get back the contributions paid by your employer. They were kept in the scheme and helped pay the benefits of those who remained until retirement age.

The pensions paid to many people are actually partly funded by the losses of early leavers.

If you left more recently, and have worked in the scheme for at least five years (two years from 6 April 1996), you are likely to find that your pension has been 'frozen'.

That means that the contributions of you and your employer remain in the scheme and you remain entitled at retirement to a proportion of your last earnings in the last year before you left the scheme. Normally those earnings will seem very low today and a few 6Oths or 6Oths of them will be a pretty paltry pension.

Since 2015 anyone who was in a contracted out pension must have their pension 'preserved' rather than frozen. It is still related to your earnings in the last year before you left the scheme. But the pension to which you are entitled must be increased each year in line with the increase in earnings generally.

Read More - Other Schemes

or Lump Sums

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Other Schemes

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