Duped out of their pensions: Millions are warned to beware of cash offers to ditch final salary schemes

Report says one in four employees have been lured by the schemes

Half of all firms are considering offering the payments

750,000 may have already been victims



Millions of workers could be duped into ditching their generous final salary pensions for cash bribes.

A report by leading accountants KPMG reveals that one in four employees has been lured by offers of payments worth thousands of pounds to abandon their gold-plated pensions.

Instead, their money is being moved into risky alternatives which are at the mercy of the stock market.



Duped? Many workers are cashing in generous final salary pensions for cash lump sums - but many are losing a long-term benefit for a short term perk, meaning they face a poor retirement

To sweeten the deal, workers and former employees are being offered extra payments – either as cash up-front or in the form of sums injected into their new stock market pensions.

But many do not realise that they are exchanging a lucrative long-term benefit for a short-term perk that will leave them facing a far poorer retirement.

Half of all firms giving final salary pensions are believed to be considering offering cash payments to 2.5million workers and former employees.



Pensions Minister Steve Webb warned earlier this year that workers being offered ‘superficially attractive’ deals could be the next mis-selling scandal – and called for tougher rules to help clamp down on the practice.

Danny Cox, pensions expert from advisers Hargreaves Lansdown, said: ‘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.’

Warning: Steve Webb said earlier this year that the deals could be the next mis-selling scandal - and called for tougher rules on the practice

Employers are desperate to shut down their final salary schemes because they are so expensive to run.

Instead they would rather have their workers in much cheaper stock market linked defined contribution schemes – to which the employer contributes far less.

The proportion of workers in generous final salary pension schemes has declined sharply in recent years.

Now only a tenth of private sector workers are still in final salary schemes, down from 34 per cent in 1997.

The vast majority of public sector staff, however, still enjoy a gold-plated scheme.

The average pension paid by a final salary, or ‘defined benefit’, scheme is about £7,500 a year.

In comparison, the type of pension that private sector workers are being duped into currently pays an average of around £1,300 a year.

The report by KPMG found that of 91,200 workers offered cash bribes to switch their pension almost a third accepted the deal.

When up-front cash bribes were not offered, only one in five gave up their final salary pension.

On average, workers who agreed to move their pension were paid a total of £65,000, including cash and money moved into a stock market pension.

The accountants warn that up to 750,000 people may eventually be duped into less generous pensions.

Last year the Pensions Regulator revealed a catalogue of underhand tactics used by employers to persuade workers to give up their final salary pensions.

These included offering to pay for financial advice for staff – but only if they accept the advice given. Workers are also being subjected to hard sales tactics, for example being told that the special offer will disappear if they do not accept it within a week.



Risky: The money that would have been used for a final salary payment, is transferred into the stock market, with the amount paid as a pension dependent on its performance

Frequently when companies shut a final salary pension, employees will keep everything they have earned up until that date.

However, this can still be expensive for employers as they have to deliver on these expensive pension promises.

So instead, companies are offering cash bribes to persuade staff to give up everything they have earned in the final salary scheme.

If they agree to switch they will be given an estimated value for what they and the employer have paid in so far. But this will be far lower than the final salary benefits would have paid out.

This is then paid into a stock market linked pension and what the employee gets out will depend on how the stock market performs.