Is Selling Your Pension A Good Idea Part I

Is selling your pension a good idea? Part I


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Is selling your pension a good idea? Part I

Pension savers are told to ignore offers from former employers trying to buy them out of their pension

The Pensions Regulator and the Financial Services Authority have released a statement which warns advisors and trustees not to take employers up on pension buyout offers. They believe that such offers which may give an enhanced pension transfer value or ready cash are actually inadequate because you are giving up guaranteed benefits in return. Generally speaking, it is employees on a final salary scheme who are receiving these offers. Final salary pensions give you a pension linked to your earnings rather than risky stock market and annuity rates.

Most companies have now ended these final salary schemes but there are thousands of deferred members who received benefits from these schemes despite the fact that they now have a different job and benefit from another pension. Due to an increase in life expectancy and a decrease in stock market share value, such schemes have a large deficit. As companies want to reduce these deficits, they are offering incentives to those who agree to move their pension, thus freeing the company of the financial burden.

A pension’s expert from Hargreaves Lansdown, Laith Khalaf, says that pension savers need to give careful thought before accepting any such deals. They need to find out if the deal being offered is better for them or the company. In virtually all cases, the deal will benefit the company in the long run so pension savers should ignore these overtures.

A major problem is the fact that these offers are deliberately complex and without independent advice, savers have a hard time deciphering them. Mr Khalaf stated that the important joint statement shows that pension scheme advisors cannot give advice to consumers also because there is an obvious conflict of interest. Trustees have a duty to ensure that their members are advised properly.

Yet it can be difficult to find high street financial advisors who will advise on these issues. A member of advisory company AWD Chase de Vere, Param Basi, said that they are behind the Pensions Regulator’s decision to pressurise trustees to look after members. An advisor should never be paid for only recommending that the member leaves the scheme let alone be paid extra for this advice. Mr. Basi concluded by saying his company were dedicated to offering unbiased assistance to their members.

In November 2005, The Sunday Telegraph wrote about companies who offered upfront cash payments to persuade members to leave their pension schemes so such tactics are not a new phenomenon. At that time, the Pensions Regulator was implored to investigate as members of pension schemes were giving up benefits worth thousands of pounds for token sums. Therefore, why is this issue only being dealt with now?