Could you be bribed into leaving a great pension scheme?

Pension bookA solid final salary pension scheme (which guarantees a particular payment every month in retirement) is one of the rarest things in the workplace: even rarer than a clean mug in the kitchen, someone who chats to strangers in the lift or someone who visits the water cooler on a Friday afternoon just because they're thirsty. In fact, just one in 10 people in the private sector have one.

If you do have one of these, the experts say you need to grab it with both hands and treasure it. So why is your company offering you a bung to try to persuade you to leave the scheme?
Paid to leave
According to KPMG, around half of all companies operating a final salary scheme are trying to pay people to leave it.

Final salary schemes are special because you and your employer tend to pay into it and in return you get a specific sum every month on retirement. Your employer faces all the risk in making sure they have enough money in the scheme to pay you.

They differ dramatically from the other kind of pension - the defined contribution scheme. With these you pay into them and then you invest it in something. The monthly amount you get depends on what you pay in, how your investments perform, and the annuity you get at the end of it. If all those things work against you, you risk ending up with a hugely disappointing pension.

Companies hate them
The guarantees involved in a final salary scheme make them incredibly valuable to you. However, from a company's perspective they are a major risk.

If the investments don't perform well, its up to the company to meet the shortfall by pumping more money into the scheme. At any time they have no idea how much they need to pay in, and when they will ever stop having to pay these pensions. As a result they have a huge open-ended risk on their books.

The bribe
The result is that many organisations want to get people out of the schemes, so they don't face the risk any more. It means they are writing to members, offering them money in another scheme or cash in hand in order to leave. These are called 'enhanced transfer values' and they are set at a higher level than the current value of your final salary pension - because your company is trying to tempt you to take the deal.

This means the offer looks tempting. In fact, the KPMG report found that of 91,200 workers offered these deals almost a third accepted (compared to one in five who were offered the chance to switch without the cash sweetener). However, if you get an offer like this you need to be aware that in order to get this cash you are giving away a guarantee, which for many people is worth far more.

Danny Cox, pensions expert from advisers Hargreaves Lansdown, told the Daily Mail: "We've nicknamed these "plasma TV incentives". What they encourage workers to do is think about the short term and what they could buy today with the cash in hand – such as get a plasma screen TV, or a fancy holiday – rather than all the benefits they would miss out on in the future. People just do not realise the benefits they would be missing out on."

For some people the cash will be the best option, especially if you don't plan to stay with the company long so you won't have a chance to build up a decent pension anyway. However, it pays to think very carefully about what you are being offered. Don't let the money blind you to the huge risks you will be taking on. In many cases the answer should be a firm 'no' as you guard your guaranteed pension with your life.
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