Alarm over RISKS taken in rush to cash in gold-plate pension schemes
But they could be risking their financial security in old age as they abandon inflation-proof savings schemes, experts warned yesterday.
There was a dramatic increase last year in the number of people moving their final salary – “defined benefit” – retirement funds into the less generous “defined contribution” pots.
It is thought more than £50billion has been taken out of final salary plans in the past two years, with the average transfer exceeding £250,000.
This looks set to continue through 2018 as many seek bigger tax-free lump sums available and lower tax bills on death given to defined contribution savers under 2015 pension rules.
Peter Rowles, head of Willis Towers Watson’s UK Retirement practice, said: “We are going to continue seeing significant numbers of employees exiting defined benefit pensions.
“This decision shouldn’t be taken lightly.
“As we enter an era of higher inflation, an index-linked defined benefit pension can provide the kind of long-term security that isn’t necessarily available to those with a flexible defined contribution retirement pot.” British businesses are reporting a surge in demand from current and former staff who want to swap their “final salary” pensions for cash.
Half of the 182 employers surveyed by the Association of Consulting Actuaries, a trade body, said they had received a transfer request from at least five per cent of members.
Mark Abley, managing director of The Pension Review Service, said: “We are seeing a significant increase in inquiries and one of the more striking facts is that far more ‘ordinary’ workers, ie, blue collar workers, steel workers and such like, are looking for advice on getting out of schemes they have been in for many years.
“There is a lot of nervousness amongst workers, particularly in the wake of the collapse of companies like British Home Stores.”
Former Pensions Minister Steve Webb, now a director at the mutual Royal London, said: “It is vital that people take, and listen to, impartial advice both on whether a transfer is a good idea and on how the money should be invested if transferred.”
The report also said that despite rising pension contributions into auto-enrolled workplace pension schemes from this April denting take-home pay, large numbers of employees are not expected to opt-out of the savings schemes.