Final Salary Myth

The final salary pension myth

Do FSP schemes hold the same value today or is it a myth?

Final salary pension (FSP) schemes were designed to give you a regular, reliable income in your retirement that reflected your salary at retirement. Your employer would make a generous contribution while your contribution may have been more modest.

In the event of your death your spouse would receive a portion of your pension for the remainder of their life.

When you started your career an FSP, accompanying a ‘job for life’, would have been an excellent employee benefit but does it hold the same value today or is it a myth?

What a final salary pension means today

The biggest question anyone in an FSP should be asking is ‘Can my pension scheme afford to pay my pension when I retire’?

What makes this question particularly significant is the ongoing direct link between the financial stability of your former employer and your pension payments. An underlying principal of good financial management is spreading risk. Why then do so many rely on the fortunes of one company to ensure their wealth into retirement?

Unfortunately, final salary pension schemes have also been subject to external influences which have increased their base cost and adversely affected members yet to retire:

  • Increased life expectancy
  • Poorer investment performance
  • Higher taxation