A final salary scheme is a type of defined
benefit arrangement. It is set up by an employer to
provide income in retirement for its employees.
Although the employer is responsible for sponsoring the scheme,
it is run by a board of trustees (with the exception of most public sector schemes). The
Trustees are responsible for paying retirement and death
benefits.
Members contribute to the scheme with the promise of a certain
level of pension. The amount of pension payable is dependent
upon:
- the length of time served in the scheme (known as pensionable service);
- earnings prior to retirement (known as final pensionable salary); and
- the scheme's accrual rate. The accrual rate is the
proportion of salary that is received for each year of service. So,
if the scheme has an accrual rate of 60, the member will receive
1/60ths of their final pensionable salary for each year of service
completed.
For example: (pensionable service x pensionable
salary) / 60
