Pensions – definitions – Final salary pension scheme

A final salary scheme is a pension scheme that provides pension benefit to employees by using a formula that takes into account an employees salary at or near retirement and length of service. 

Although final salary schemes are highly valued by members, many have closed to new members in recent years because employers want to avoid the huge costs of dealing with any deficits (which can occur during times of poor stock market performance or due to increased longevity of pensioner members). 

Many employers running final salary schemes have had to inject lumpsums of cash into the scheme or increase their pension contributions. Final salary schemes are still common in the British public sector.

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