Experts warn on pensions opt-outs for cash

Pension experts are worried that too many companies are too readily offering their employees large cash incentives for them to quit their often deficit ridden employer-connected pension schemes and move into a personal pension plan, or to opt for a less generous pension. Often, members of such pension programs are often offered thousands of pounds in cash to exit pension funds that are in deficit so that the companies they work for can cut their liabilities. By taking the cash, the individual loses any right to a pension from their employer.

The problem is, many of those who take the cash don’t put it into a private pension account or invest it otherwise to provide for their retirement, but instead buy a new car or spend it on other high-ticket items. Experts are concerned that pension fund trustees who run pensions schemes are not making sure that their members are aware of the full consequences of taking cash to exit the scheme. They are also worried that by issuing guidelines on such pay-offs, the Pensions Regulator has in effect encouraged more companies to take that path.

Trade unions are also concerned, as they have received more inquiries from their members about what they should do when offered these cash incentives to quit their pension scheme. The unions have called for requirements that employers and pension fund trustees explore all other options before being able to offer cash payments to employees to induce them to exit the pensions schemes.

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