Pension warning spells out the dangers of switching
Members of work pension schemes have been warned about the dangers of accepting inducements to transfer out of their pension plans.
The Pensions Regulator is sending out the pension advice that it is worried about staff being offered inducements to move from a final salary scheme to a money purchase one. Employees who accept the offer risk getting a poor deal while the employer saves money.
HM Revenue & Customs has changed its own advice on the issue and says that cash inducements will now be taxed, on the basis of pension advice it has received.
Chief executive of the Pensions Regulator, Tony Hobman, said: “While we recognise that employers may not break any laws when they offer an inducement, whether it is cash payments or an increased transfer value, we are worried that some transfers are being proposed to avoid an employer’s full pension liability.”
The last 10 years have witnessed rapid growth in the number of employers that have been closing their final salary schemes – or defined benefit schemes as they are also known – and putting new staff on to cheaper money purchase schemes.
The Pension Regulator and the Pension Protection Fund announced recently that 58% of all final salary schemes are now closed to new members.