Do Final Salary Pensions Still Exist?

Yes, final salary pensions still exist — but they’re rare. Learn who has them, how they work, and what your options are.

Do Final Salary Pensions Still Exist?

Final salary pensions – also known as defined benefit pensions – were once seen as the gold standard of retirement income. Promising a guaranteed, inflation-linked income for life, they offered peace of mind and financial stability that few modern pensions can match.

But with changes to the pension landscape over the last two decades, many people now ask: do final salary pensions still exist? The answer is yes, but they are becoming increasingly rare. This article explains how they work, who still has them, and what your options are if you do.

What is a final salary pension?

A final salary pension is a type of defined benefit pension. It provides a guaranteed income in retirement based on your salary and how long you’ve worked for your employer, rather than how much you’ve contributed or how your investments perform.

The amount you receive is usually calculated as a fraction of your final salary (e.g. 1/60th) for every year you’ve been a member of the scheme. Some schemes use career average earnings instead, but the principle is the same: your future income is pre-defined.

This differs from a defined contribution pension, where the value of your pot depends on how much you pay in and how well it grows through investment.

Do final salary pensions still exist in the UK?

Yes — final salary pensions do still exist, particularly in the public sector and a limited number of large private companies. However, they are no longer widely offered to new employees, and many private sector schemes are now closed to new members or even closed to future accruals.

Public sector final salary schemes

Most public sector pensions were reformed in 2015, replacing final salary models with career average revalued earnings (CARE) schemes. These are still defined benefit pensions — meaning they offer a guaranteed income — but based on average pay rather than final salary.

Examples of reformed public sector defined benefit schemes include:

  • NHS Pension Scheme

  • Teachers’ Pension Scheme

  • Civil Service Pension

  • Armed Forces Pension Scheme

  • Local Government Pension Scheme (LGPS)

Some members who were close to retirement in 2015 may still retain final salary benefits under transitional protection rules.

Private sector final salary schemes

In the private sector, very few employers now offer final salary schemes to new staff. However, many people still hold historic final salary pension rights from previous employment, particularly if they worked in large organisations such as banks, utilities, or manufacturing firms.

These schemes may be:

  • Open to future accruals (rare)

  • Closed to new members, but still building up for existing ones

  • Frozen, meaning no new benefits are being built up, but existing entitlements are protected and revalued for inflation

So while they’re not being offered widely today, millions of people still have final salary pensions — either active or preserved.

Who benefits from final salary pensions?

Final salary pensions benefit anyone who has been a member of one. This includes:

  • Public sector employees, including NHS staff, teachers, police and civil servants

  • Private sector retirees or former employees of companies that once offered defined benefit schemes

  • Deferred members, who no longer work for the employer but retain pension rights

If you’re unsure whether you have one, check old employment paperwork or contact the Pension Tracing Service on gov.uk.

How do final salary pensions work?

The key features of a final salary pension include:

  • Guaranteed income for life, unaffected by investment performance

  • Inflation protection, with annual increases to preserve spending power

  • Spouse’s or dependant’s pension, usually half of your pension after death

  • No investment decisions required, as the scheme manages the funds

  • No risk of running out of money, unlike drawdown-style pensions

For example, if your scheme offered 1/60th accrual and you worked for 30 years earning £36,000, your annual pension would be:

30 x (1/60 x £36,000) = £18,000 per year

This is then paid for life, often with inflation-linked increases.

Are there tax benefits?

Yes. Like other pensions:

  • You can usually take 25% of your final salary pension as a tax-free lump sum when you retire, with the rest paid as taxable income

  • You don’t pay income tax on pension contributions while building up your benefit

  • Your pension is typically outside your estate for Inheritance Tax, though benefits stop on death in many cases

Note that final salary pensions do not have a ‘pot value’ like defined contribution pensions. Your benefit is a promised income, not an investment pot.

Can you transfer a final salary pension?

You can transfer a final salary pension into a defined contribution scheme — but only if you haven’t started drawing it. Transferring means giving up a guaranteed income in exchange for a cash equivalent transfer value (CETV).

Because of the risks involved, you must take regulated financial advice if your CETV is worth more than £30,000.

Transfers are generally not recommended unless you have specific needs (e.g. ill health, no dependants, desire for inheritance flexibility). Giving up a secure, inflation-proof income is a major decision and can’t be reversed.

What happens to your final salary pension at retirement?

When you reach your scheme’s normal retirement age — usually between 60 and 65 — you can start taking your final salary pension. You may have the option to:

  • Take a tax-free lump sum in exchange for a reduced income

  • Take the full pension as income with no lump sum

  • Take early retirement with a reduced pension

  • Delay retirement, which may increase your benefit

You do not need to purchase an annuity or manage investments — the scheme pays your income directly, usually monthly.

What if the pension scheme runs into trouble?

Final salary pensions are backed by employers — but if a company goes bust, the Pension Protection Fund (PPF) steps in. The PPF provides compensation of:

  • 100% of your pension if you’re already retired and over normal retirement age

  • 90% of your pension if you’re under pension age (subject to a cap)

While this safety net isn’t perfect, it offers substantial protection in most cases.

Planning advice if you have a final salary pension

If you’re one of the lucky few with a final salary pension, it’s a valuable asset — often worth the equivalent of hundreds of thousands of pounds.

Here are a few tips:

  • Get a benefit statement from your scheme to see your projected income

  • Understand your retirement options, including lump sum choices

  • Factor it into your wider retirement plan — it can be the income foundation

  • Avoid transferring out unless advised to do so by a regulated pensions specialist

  • Check spouse or dependant benefits to ensure your family is protected

If you’re nearing retirement and unsure how it fits into your overall finances, a financial adviser can help build a complete picture.