Many people have the opportunity to join a pension scheme supplied by their employer. There are two major types of occupational pension (final salary and money purchase schemes).

Final salary or defined benefit schemes are based upon the amount of money a person is earning by the time they come to retire.

This is used in conjunction with the number of years scheme membership to determine the amount of pension. So at any time during the years of membership, a scheme member can reasonably predict what the benefit will be at the time of retirement by using a simple formula such as final salary multiplied by the years of service and divided by 80. (the eighty is the amount of pension the scheme pays out for every year of service - some schemes pay out a sixtieth).

This is why final salary schemes are sometimes called defined benefit schemes.