Preserving a final salary link—what does it mean?
Produced in partnership with Barry Gibb of Hill Dickinson LLP
Preserving a final salary link—what does it mean?

The following Pensions practice note Produced in partnership with Barry Gibb of Hill Dickinson LLP provides comprehensive and up to date legal information covering:

  • Preserving a final salary link—what does it mean?
  • What is a final salary link?
  • How do you know if a scheme has a final salary link?
  • Re Courage—preservation of the final salary link
  • Case law developments since Courage
  • No distinction between ‘accrued’ and ‘secured’
  • Other wording used in Courage-style fetters
  • No removal of Courage-style fetter
  • Commonwealth cases—an alternative approach to the Courage-style fetter?
  • What is the impact of the preservation of the final salary link?
  • More...

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.

What is a final salary link?

Ordinarily, if a member of a final salary scheme leaves active membership due to leaving their employer’s service:

  1. the date on which that member’s pensionable service terminates is the same as the date of leaving service (the departure date)

  2. the member will stop accruing benefits on the departure date, and

  3. those benefits will be calculated on

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