The choice: a £40,000 in­come – or £1.3m

The Daily Telegraph - Your Money - - FRONT PAGE -

Mil­lions of peo­ple have valu­able ‘fi­nal salary’ pen­sion en­ti­tle­ments, but is it right to swap them for cash, asks Ed Monk

Sky-high pay­outs and a grow­ing de­sire to avoid in­her­i­tance tax are just two of the fac­tors driv­ing a surge in the num­ber of re­tirees will­ing to swap their “gold plated” life­long pen­sion in­comes for a one-off cash sum. Tak­ing such a step means turn­ing a long-held tenet of shrewd fi­nan­cial plan­ning on its head.

The is­sue re­lates to the mil­lions of peo­ple who have “de­fined ben­e­fit” or “fi­nal salary” pen­sion en­ti­tle­ments but are not yet to draw the in­come.

These once-com­mon schemes prom­ise to pay re­tirees an in­come re­lated to their wage and the num­ber of years of em­ploy­ment. There are of­ten gen­er­ous perks such as in­fla­tion­proof­ing or spouses’ ben­e­fits.

Many schemes are now in cri­sis, with in­ad­e­quate funds to pay the promised pen­sions. This can be a crip­pling prob­lem for the busi­ness, which has to pri­ori­tise its ail­ing pen­sion fund ahead of other, vital in­vest­ment in growth or fu­ture em­ploy­ees.

Some are of­fer­ing savers “ir­re­sistible” deals to leave, ex­perts have re­ported, as they strug­gle to fund their fu­ture li­a­bil­i­ties. And the terms are so good that even cau­tious savers – who hugely value a guar­an­teed, in­fla­tion-linked in­come – are be­ing tempted.

This in­cludes Tele­graph Money reader Si­mon Ma­jor. He has al­ways known that his fi­nal salary pen­sion scheme makes him one of the lucky ones.

As a life­long em­ployee first of ICI and then the com­pany that bought it, AzkoNo­bel, he is in line to re­ceive two thirds of his fi­nal salary as a pen­sion in­come once he has reached 40 years of ser­vice – one of the most gen­er­ous ex­am­ples of “gold-plated” pen­sions that ex­ist. This year, aged 59 and with al­most 39 years of ser­vice un­der his belt, Mr Ma­jor asked about tak­ing re­dun­dancy.

When the com­pany came up with a pack­age that tempted him, he ex­am­ined his op­tions.

He knew it was pos­si­ble to take 25pc of the value of his pot tax-free, or oth­er­wise leave the money where it was and re­ceive a higher in­come for life. When he sought pro­fes­sional guid­ance on this, how­ever, the ad­vice urged him to go even fur­ther.

One fi­nan­cial ad­viser, and then an­other, sug­gested he trans­fer out of his fi­nal salary scheme com­pletely and take his chances by in­vest­ing the cash-in pay­ment that he would be given in­stead.

Strik­ing gold: Si­mon Ma­jor has been ad­vised to cash in his pen­sion and in­vest

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