Saying “Farewell” to Final Salary Pensions

February 24th, 2015 - Posted by

john lewis waitrose
The John Lewis Partnership (that includes Waitrose) are to axe their generous final salary pensions for employees, as British business moves one step closer to the eradication of the out-dated schemes.

With the help of Gary Singh, independent financial advisor at Sigma Wealth Management, we took a look at the demise of the final salary pension to see just what this means for retirees moving forward.

Final salary pensions are a continued income paid to a company’s employees on retirement. Usually it is calculated as one-sixtieth of your final salary, multiplied by the number of years you have been part of the scheme. “Virtually every firm is moving away from final salary pensions” explains Gary. “We’re living longer and working a lot longer, so schemes are becoming more and more expensive to run”.

The idea behind final salary pension schemes is that, rather than having to contribute to your own private pension scheme each month before purchasing an annuity in retirement, your employer continues to pay you once you’ve retired from the company.

With all the risk lying with the employer, combined with rising mortality rates and falling stock markets, final salary pensions have become too much of a financial burden for most companies.

Gary Singh spoke to us about the responsibility that retirees have now business are moving away from these schemes, and told us that “The onus is now on the individual to make their own provisions so seek professional advice. Before you never had to worry about your pension but that’s no longer the case.”

It isn’t surprising that UK companies are moving away from final salary schemes for their employees. Supermarket giant Morrisons, who announced they were changing their scheme a few months ago stated that they expected to save between £5 million and £10 million per year. And as many of the remaining final salary pensions in the UK are found in the public sector (final salary pensions are 10 times more common in the public sector), the government’s recent announcement of restructures to their pension scheme have been met with contention by employees despite the fact it should save an estimated £430 billion of tax payer’s money.

But where does the axing of final salary pensions leave workers who were expecting this generous pension income? “Invariably you will be worse off as you’ll have to contribute more for your returns,” states Gary. But he does believe that it isn’t all doom and gloom, and moving away from these schemes will have many benefits for workers, particularly following his year’s pension reforms.

“Come April, once you retire, you’ll have access to your entire pension fund, rather than relying on a company to pay out your pension.”

Retirees will be able to access their entire pension funds, with 25% of this tax-free. Because final salary pensions are paid on retirement as a regular income (not dissimilar to an annuity), they aren’t flexible. The new rules will allow greater flexibility and the added benefit for those in retirement to access their pension funds as they desire.

We are also seeing many employees taking steps to alleviate their risk of being tied into pension payments: “We’ve seen people being offered between 20 and 25% on top of their pension fund value as an incentive to leave the scheme. I know of somebody who was offered £18,000 at the age of 62 to transfer out of their final salary pension scheme.”

Transferring out of your final salary pension scheme also has additional benefits for your family and loved ones. While your employees final salary scheme may have only offered a spouse 50% of your funds value once you die (and nothing for additional heirs once they are gone), the new rules will allow you to do as you wish with your pension savings. “With a final salary pension, if you die your heirs may not fully benefit from your scheme – a spouse may be offered half of its value. But once they die, the money cannot be paid out to any other heirs. By transferring out, your money is available to pass on as you wish when you die.”

So while the national press may outline only the negatives of the demise of final salary pension schemes, along with this year’s pension reforms UK workers can actually expect even greater flexibility from their pension funds – even though in the long run it may be slightly undervalued compared to a final salary scheme. As always, we would recommend you seek final advice from an independent advisor before transferring your pension scheme to a defined contribution option, or if you have any concerns about your current financial situation in retirement. As Gary Singh signs off: “Be more pro-active when it comes to your pension and expand your own knowledge by seeking professional advice”.

Ryan Smith is part of the content development team at Compare Annuity, working with a carefully selected network of annuity specialists offering retirees free, no-obligation quotes and advice on annuities. Gary Singh is an advisor at Sigma Wealth Management in the West Midlands.

Debunking printer rumours to save you money

February 11th, 2015 - Posted by


For every office or personal computer currently in the world, which is estimated to be about one billion at the end of 2007, there is likely a printer for at least half of those. Like with sweets or crisps, the choices seem limitless and of course, certain groups claim that they have ‘tips and tricks’ to getting the most out of printers or knowing some hidden secret about the manufacturers.
Here’s a quick summary of the top ten and also why they’re totally wrong.

How To Manage Your Money After Winning The Lottery

January 26th, 2015 - Posted by

lottery winners
You buy lottery tickets with the hope of becoming an instant millionaire. But if that dream had to become your reality tomorrow, would you be prepared? Would you know how to manage your millions?

How to maximise your office space

December 4th, 2014 - Posted by

office box

The cost of office space around the world is constantly on the rise, particularly in London, which continues to be the most expensive office market in the world. In light of this, businesses are focusing more and more on how to make the most of their limited surroundings. When relocating to a more ample office just isn’t in the budget, follow these simple tips to maximise your work space.

Four brilliant ways to get the best from your windows

November 20th, 2014 - Posted by

Your windows are a great way to show the world how much you care about your home, and they should be as well looked after as your carpets or furniture. According to an article in the Daily Mail the average woman in the UK spends 1 and a half years cleaning her home, but all of that time is wasted if no attention is paid to the windows. Dirty windows or scruffy curtains can ruin the way a room looks, so here are a few tips to make your windows look their best.

5 Little Known Energy Saving Tips & Tricks You Never Knew

November 10th, 2014 - Posted by

For even the most ardent of energy conscious households, energy wastage can a problem to varying degrees – sometimes because you aren’t even aware of all the ways you’re losing money. We all know about keeping the windows shut in winter (double-glazed, of course), turning off the lights when you leave a room and not keeping devices on stand-by – even if most of us still don’t do these things – but what about the lesser known energy saving techniques?

4 ideas for online businesses you could start

September 24th, 2014 - Posted by


Recently, we wrote about the why handicraft hobbies rule. Not only does engaging in an artistic, hands-on activity help to calm your nerves after a long day at work, but the end product can also be something that you can give as a thoughtful gift to friends or family. But maybe your hobby is something you would like to pursue full time? You may feel that you don’t know how to get your small business idea off the ground, or you may think it has to be very expensive get the word out.

Traditionally, that was true of course. Small businesses were able to begin their marketing campaigns only with flyers, word-of-mouth marketing and advertisements in the local papers. Today, the Internet has broadened your marketing to potential to include inexpensive, expansive and effective ways to spread your business idea. Here we will talk about some interesting ideas to market online and the different avenues you can take to do that.

Why handicraft hobbies rule and can save you money

September 19th, 2014 - Posted by

Keeping a work-life balance is important for most of us, so taking up a hobby is important. However, many of us concentrate on sports or fitness, hobbies that can make us healthy as well as busting stress. What a lot of people don’t consider is taking up handicraft hobbies, which in fact have many advantages. We’re taking a look at why these hobbies are so enriching, and which you might want to look into.

Why Handicrafts?

There are many reasons to look into a handicraft hobby. Working with your hands is relaxing, and being concentrated on a project doesn’t leave much time to brood over the workday. You will improve manual dexterity, and it’s good for your brain! Many, though not all, handicraft hobbies are relatively inexpensive and in some cases, you’ll have a stock of thoughtful presents to give as well as an added bonus. If you’re wondering what your options are, then we’ve got some great ideas for you.

How to cut your driving costs

September 11th, 2014 - Posted by

driving costs

These days, the expenditure associated with driving seems never to end. Of course, there is the capital cost of vehicles to consider and – in many ways – car manufacturers have made great strides in providing the road going public with better and better cars for less outlay. Nevertheless, car finance, lease deals, tax, insurance, fuel and parts all seem to get more expensive with every subsequent year. Running a car costs thousands of pounds per annum for an average motorist. However, there are some measures that every car owner can take to reduce their expenditure when driving about. Indeed, a good many of these measures are also suited to van owners, bikers and owners of commercial vehicles, too.

8 ways to have free fun on your bike

September 8th, 2014 - Posted by

“Mum, mum I want a bike.”

I think every parent has heard this demand; you probably screamed it when you were younger. It starts at about the age of three. And I guess mums around the word have done something right: because avid cyclers have created and learned to play a variety of different sports using the bicycle.

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