Defined Benefit (Final Salary) Pension
This is a type of pension where the benefit received depends primarily on the policy holder’s salary at time of leaving or retiring from the employer’s scheme and the number of years of service in the scheme.
Most schemes of this type have now been closed due to the high cost to the employer of providing them, however many individuals will have benefits in this type of scheme either already in payment, or that will commence payment when they reach the scheme retirement age.
Some schemes have remained open but have changed to a Career Average Earnings (or CARE) basis, which means the benefit is based not on the salary when leaving, but the individual's average salary throughout their membership of the scheme.
The main alternative to a Defined Benefit (DB) pension is a Defined Contribution (DC) Pension.
2 November 2022 at 18:35:28
This glossary definition has been deliberately kept as simple as possible to give a brief outline of the term to assist with general financial knowledge. It is not intended to give a detailed explanation. Please refer to our Legal Declarations.