Employers with final salary pension schemes (a type of defined benefit scheme) have been looking for ways to reduce their exposure to financial liability and many have altered their benefit structures, closed it to new members or even closed it to future accrual. Despite a scheme being closed to future accrual (also known as a ‘frozen’ scheme), members may still retain a link to their final salary. When the link is retained, pensions are likely to be higher as compared to the deferred revalued preserved pension that a member would otherwise have been entitled to if there had been no link to their final salary, and this would reduce the impact of the employers’ liability reduction proposals.

This Practice Note focuses on the meaning, preservation and impact of a final salary link.

For issues arising on the closure of a defined benefit scheme to future accrual, see Practice Notes: Closing a pension scheme to future accrual—employer considerations and Closing a pension scheme to future accrual—trustee considerations.