by Trevor Goodbun
Confused about pensions? Then join the club, after over 30 years I am still learning something new every day, but the basics are simple, honest!
Nearly every type of pension falls into one of two camps, defined contribution or defined benefit.
Final Salary pensions are the best known example of a defined benefit scheme and the amount of pension you will receive will depend on three things
• Your salary.
• The years you are a member of the scheme.
• The schemes accrual rate.
Don’t be put of by the last expression it simply refers to how much pension you will receive for each year you are a member. So if you are a member of a final salary scheme for 20 years with a 1/60 accrual rate and your final salary was £30,000 you would receive a pension of £15,000 a year,
£30,000 x 20 = £15,000
The scheme is then obliged to pay you that pension for life no matter what the cost.
Most private sector schemes allow you to exchange some of that income for a lump sum, most public sector schemes provide a separate lump sum that can be exchanged for a pension.
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