Direct from a Final Salary Scheme

Since April 2006, it is no longer necessary to retire in order to take pension benefits. Pension benefits can be taken in full or in part. This is called crystallisation. Each time the benefits are crystallised, the value is measured against the lifetime allowance.

When a member of a final salary scheme reaches the scheme’s normal minimum pension age, they will be entitled to take pension benefits based on:

the scheme’s accrual rate,
their final pensionable salary (as defined in the scheme’s rules), and
service in the scheme.

A pension in payment is taxed as earned income.

The pension fund can also provide tax-free cash. The amount of tax-free cash available will depend upon the scheme rules and the length of service, although the maximum which can be taken is 25% of the value of the benefits.

Some, or all, of the pension may escalate each year in payment. The level of escalation will depend on the following rules:

for pensions in respect of service between 5 April 1997 and 6 April 2005, the pension must escalate in line with the Retail Price Index (RPI) to a maximum of 5% per annum;
for pensions in respect of service after 6 April 2005, the pension must escalate in line with RPI to a maximum of 2.5% per annum
for pensions in respect of service outside of these two dates, the pension may escalate, but only in accordance with the scheme rules e.g. according to a fixed rate of increase, or the scheme may make discretionary increases from time to time.

For more information, please contact us.