The straightforward answer to how long does a Final Salary Pension last is that it will last for as long as you live and then if your spouse is still alive, a portion of your Final Salary Pension is paid out to them for the rest of their lives. Unfortunately, it stops there as this type of pension cannot be passed onto other beneficiaries.
Final Salary Pensions payout from the Normal Retirement Age (NRA) of the particular scheme you belong to unless you have requested Early Retirement and have accepted your scheme’s reduced pension offer. Again, this will last for the rest of your life, spouse etc. The pension income is index-linked so increases in line with inflation.
A defined benefit scheme’s Normal Retirement Age (NRA) is often different from the state pension age (currently 66 but rising to 67 in 2028). Many bank-sponsored schemes have a retirement age (NRA) of 60. Many other Final Salary Pension Schemes are set at 65 and some at age 67.
Retiring before reaching the age of 55 is not usually possible unless you are in serious ill-health, but this is at the discretion of the Final Salary Pension Scheme. The Office of National Statistics (ONS) has data showing the average life expectancy for a male in the South of England to be approximately 85 and a female 3 years older.
People often have a mix of pension types built up by the time they reach retirement as a result of working for several different organisations. The most common type of pension people pay into now are defined contribution pensions with Final Salay Pensions and career-averaged pension becoming a thing of the past.
DC pensions have a point-in-time cash value, and this is used to estimate an annual income if that money was used to buy a secure income for the rest of your life. However, buying a secure income is optional and you can instead withdraw funds flexibility curtesy of Pension Freedoms. Retirement planning is the specific area of financial planning that addresses this need.
People are now living more than 30 years in retirement and managing money over the long term to ensure you don’t run out needs very careful consideration. Good Financial Planners will help you work out how much money you need for the rest of your life by using sophisticated software and doing regular forward planning reviews.
Calculating how much Lump Sum Tax-Free Cash (TFC) to take whether from a Final Salary Pension on commencement or from a defined contribution pension flexibly, should be done with a view to how this affects your long-term financial planning requirements, goals, and aspirations.
It is also important not to pay more tax than you need to by carefully analysing your income options. Spreading income from a drawdown personal pension pot so that the income is taxed more favourably should make the pot last longer. There is a way of taking income from a DC pot that includes 25% Tax-Free Cash (TFC) as part of the income so that only 75% of it is taxable.
Many people are phasing in their retirement by either working fewer hours or by changing careers for a less stressful job. Some are drawing a pension income and continuing to work. Tax relief on pension contributions continues until age 75. National Insurance contributions cease to be paid at your state pension age. All these retirement factors need to be factored into a well-worked retirement plan.
This article looked at how long does a Final Salary Pension last but there is a great deal more to consider than is covered in this article.
Would you like to get some professional advice to gain increased financial peace of mind and family security? If the answer is yes, the next step is to have an informal exploratory chat with a qualified financial adviser to see if it is worthwhile proceeding to the formal process known as regulated financial advice.
Regulated advice can only be given by an appropriately qualified person who is regulated by the Financial Conduct Authority (FCA). Pension advice should only be given by pension specialists working with financial advice firms holding the relevant pension advice permissions.