20 Feb 2015, 10:34pm


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    Defined Benefit (pension)

    Final salary pension schemes are the canonical example of this – your pension was determined as a percentage of your final salary times the number of years you had worked for the firm divided by some scale factor (typically 60 to 80). For example if you earned £100,000 when you left the company and had worked there for 20 years in a 1/60ths scheme your pension at normal retirement age would be

    £100,000 × 20 ÷ 60 = £33,333

    There may also have been some sort of inflation scale factor

    These used to be widespread from the late 1970s to the 1990s, dying out over the next decade. The nice thing about them was you knew what you were getting and could plan – you are not at the whim of stock market returns and can’t screw up your investment strategy or blow the lot on a Lamborghini

    Contrasted with DC (Defined Contribution) pensions

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