Final Salary Schemes: Know Your Options
July 14, 2017
July 14, 2017
Recently there has been a surge of shocking global events such as Brexit and the American general election, to name but a few. It has undoubtedly left a lot of us feeling uncertain, especially when it comes to our finances. How are you to know the best option for you? If you’re opted into a final salary scheme, you need to know your options. That’s where Bespoke Support Network comes in.
So, What is a Final Salary Scheme?
Essentially, a final salary scheme is a defined benefit pension programme which is often offered by employers. The eventual outcome of the plan is dependent on four variables:
- The Amount of Time of Which You Have Invested into the Scheme: For example, if you have worked with your current employer for 30 years, your end benefit will be a lot greater compared to a fellow colleague who has only worked at the business for 5 years.
- Your Salary: Similarly to the first variable, your final pay packet will depend on your salary, the higher the salary, the higher the pension and vice versa.
- Your Companies Accrual Rate: This is the rate at which the benefits build up for the individual. You will receive a set amount for each year of pensionable service. As they are typically expressed as a fraction, 1/60th or 1/80th are often common.
- The circumstances under which the benefits are taken: The amount you receive will be based on the situation. For example, retirement, ill health etc.
Should I Transfer my Final Salary Scheme?
It is believed that on average, an individual works for six employers in their lifetime. That’s potentially six pensions. It’s often advised you leave your pension where it is as it is a guaranteed income. Not only that but they also increase to keep up with inflation.
However, your scheme provider might offer you a financial incentive to transfer out. There are two types:
- Cash-Equivalent to the Transfer Value
which you then transfer to another scheme.
- Cash Payment to the Transfer Equivalent
Be mindful, this option may mean you still pay tax and national insurance.
Advantages and Disadvantages of Final Salary Schemes:
There could be an endless list of advantages and disadvantages. However, it will depend greatly on you and your current financial position. If you’re considering making changes to your plan it’s strongly recommended you seek advice from an independent financial advisor. If you would like more information on final salary schemes or any other services Bespoke Support Network offers, please do not hesitate to get in touch.