Managers are offering their employees cash rewards for opting-out of “gold-plated” pension schemes. This practice could soon be banned, but workers are still being warned against leaving their company pension without plenty of consideration.

The appeal of what many employees are being offered is the immediate large pension increase. In order to attain this higher pension the employee must transfer to a separate pension scheme, one that will not provide any increase after the initial rise. Pension experts are suspicious of this practice and raise concerns that the employees may lose out in the long run.

If you are concerned about your pension and want a quick and easy way to  find out current rates, use our simple pension calculator.

Switching pensions

Investment and annuity risks will become a factor when switching pension funds from a defined benefit scheme into a new untried scheme. It is a higher risk strategy and benefits that the employees spouse and dependants would receive with the company scheme may be lost with the new scheme. The employee may also lose the protection provided by Pension Protection Fund Cover, who support employees if their company goes into administration.

However transferring may well be beneficial for some employees, particularly those who suffer from ill-health, as they would gain more from enhanced annuity schemes. The annuities would lead to a better pension and the option to leave the pension untouched so as to ensure the employee’s heirs will come into the money after the employee’s death. The pension would also not be taxed in this event.

Have a look at our annuity comparison table below for current rates suitable for you.

Drawdown at younger age

The stakeholder pension is one of the simplest schemes; it is one of the cheapest available. Take a look at Virgin’s stakeholder pension, for more details.

The new scheme would also give employees the option of taking income drawdown at a younger age than is usual. Single childless employees would benefit the most from this as it is dependents who benefit most from the company schemes.

Whatever your situation it is advisable to seek advice from experts before rushing into a decision on the back of pressure in the workplace or immediate gain. Fill in a pension enquiry form to speak to an independent financial advisor.

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