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DWP has introduced new rules to stop employers from inducing workers out of their gold plated pension plans

Date: (11 June 2012)    |    

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In the past five years there was a trend where in cash incentives worth thousands of pounds were being offered to workers in return for swapping their final salary scheme to cut price plans which saved the employers huge sums in payouts.
But now the Department of Work and Pensions has introduced rules which would stop this practice of ditching their final salary pensions for cheaper alternatives.
It has emerged that more than 600,000 workers have been offered such schemes with a worker who accepted typical £10,000 cash gift to swap his retirement benefits losing as much as £100,000 over a 20 year retirement.
A 40-year-old man who switches from a final salary scheme worth £20,000 could be left £6,000-a-year worse off during retirement, research for the Mail shows.
The DWP says many companies were hounding staff into accepting the cash offers in an attempt to plug a £200 billion black hole in pension funding.
The final salary pensions which were open to new recruits has fallen 88 per cent in a decade with only one in five still open for the new comers.
Pensions minister Steve Webb said the changes will stamp out bad behaviour.
‘The practice of offering cash incentives for people to give up valuable pension rights is a source of particular concern.
Though the firms were needed to manage their pension liabilities, it had to be done in accordance with informed choices of the member about their pensions he said.
Thousands of staff has taken up the offer, unaware that they were jeopardizing their future retirement incomes.
The new rules will not only ban cash incentives to wean away people from their final salary pensions but also allow workers to know about the pros and cons of a transfer spelled out in clear language, with advice provided free of charge by qualified advisers.
It comes as gold-plated pensions slowly die out in the UK.
In January, Shell became the last of Britain’s 100 biggest companies to close its pension to new staff.
Now the workers are being pushed into money purchase pensions, where old age income would depend on the amount saved, stock market gains over the years, and interest rates at retirement.
But the 2.4 million people who are part of the final salary scheme have become a costly burden and firms want them out.
The new code is to protect workers interests but questions are being raised on that in is only a voluntary scheme and not mandatory which would take lot of time to take effect.