Defined Benefit Pension Schemes
These are occupational pension schemes, usually sponsored by an employer or the State. They will typically promise: –
- A pension at retirement, usually linked to either pensionable salary near to the time of leaving the Scheme (whether by resignation or retirement) or total accumulated salary (usually revalued by inflation to retirement) as an employee. The former type of arrangement is referred to as a Final Salary Pension Scheme, whilst the latter type of arrangement is referred to as a Career Revalued Earnings Scheme.
- A separate tax-free lump sum at retirement or the right to exchange some of the pension for a tax-free lump sum.
- Some inflation proofing of benefits either in payment or in the period before retirement if a member leaves early (since 1986 this latter has become a compulsory right).
- Spouses’ (widows’/widowers’) pensions (usually as a percentage of the member’s pension) on the member’s death either before or after retirement.
- Lump sums on death before retirement, usually a multiple of the salary for those still in service or a multiple of the accrued pension for those no longer in service.
- Ill health pensions on early retirement if unable to work.