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27 Aug 2017

Ask an expert: 'I receive a 'bridging' pension as I took early retirement. Can I have more than one?'

What happens to your final salary pension if you take early retirement

Every week, Which?'s money experts answer your financial queries. You can submit your questions to money-letters@which.co.uk, or via our Facebook or Twitter pages.

Q. At the age of 50, I started receiving my current defined benefit pension because of ill health. It includes an annual 'bridging' pension amount. I am about to start receiving another defined benefit pension, and the scheme has indicated that this also includes a bridging pension amount.

As I am already receiving a bridging pension from my first scheme, is it possible to have it fromtwo schemes?

Submitted via the Which? Money Helpline

A. Defined benefit, or final salary, pensions are considered to be the 'gold standard' when it comes to retirement savings. Rather than saving into a pension pot that builds up over time, leaving you to choose how to generate an income in retirement, defined benefit pensions pay you an annual income based upon your salary during your career.

Final salary pensions and your state pension are closely interwoven. People that were part of a final salary scheme were 'contracted out' of the additional or second state pension (known as the state earnings-related pension scheme, or Serps).

This meant that both you and your employer paid lower rate of National Insurance,but no longer building up any additional state pension.

Because your employer was saving money by paying less National Insurance, and you weren't contributing to the additional state pension, your pension scheme was obliged to pay you an amount equivalent to the second state pension you would have otherwise received.

This is known as the Guaranteed Minimum Pension, and applies to people who were contracted out between 1978 and 1997.

What is a 'bridging pension'?

So, the UK's state pension system can have a profound impact on how your private pension has been calculated. And, in your case, the age at which you can collect your state pension is also influencing the amount of private pension you get.

The state pension age is currently 65 for men and around 64 for women. By 2018, it will be equal for both men and women, and by 2020, it will be 66.

Your pension scheme had a normal pension age of 60, but you were medically retired at the age of 50. So, your scheme has been paying you a 'bridging amount' - a higher level of scheme pension - designed to 'bridge' the gap between the date you start taking a scheme pension and the date you reach state pension age at 66.

These aren't a common feature of final salary pensions. Normally there would be a penalty for taking your pension before your normal pension age in the form of a reduced payment, but you have two pensions that offer a bridging amount.

A bridging amount only provides a temporary boost to your pension, however. Once you've reached state pension age, the bridge then falls away, and the income you receive from your private pension will decrease.

Of course, this should be more than replaced by the actual state pension you receive when you reach state pension age.

The good news is that this additional amount is a mandatory element of your pension, meaning it's is part of the scheme's rules. That means you can receive it from more than one scheme.