A good article by the Telegraph newspaper after the regulator's warning over pension sweetners points out that in many cases employees are offered a cash payment instead of an "enhanced" payment into a new retirement plan. The danger of handing over cash is that:
this could be spent now, at the expense of the client's future pension," said Lee Smythe, adviser at Killik & Co.The article also quotes Paul McGlone, Principal and Actuary, Aon Consulting saying that the regulator is 'scaremongering':
“While we agree that such exercises must be properly conducted, the fact that some bad examples exist doesn't mean that they should all be tarred with the same brush.As a board-certified scaremonger myself, I'm afraid I can't quite bring myself to agree with Mr McGlone. Would it, in fact, be too cynical to wonder whether he has done some consulting for some of the companies offering incentives to get employees to leave their defined benefit funds?. That may be too uncharitable of me. But either way I have to agree with the regulator's starting point, which is that it presumes these are not in the interests of members of the pension funds and that it is for the company to prove otherwise. That seems to make far more sense than for the regulator to stand back completely, as Mr Glone suggests, and expect every single member to get good independent advice from a financial advisor.
"There are many examples of well run exercises, and it's not for the Regulator to determine what is or isn't in a member's interest - that is for them and their IFA. By making comments such as this the Regulator is just adding to the fear that ordinary people have about pensions."
I don't have the luxury of being in a defined benefit plan - my current employer closed it to new members a few years before I joined - but if I was in one the offer to get me to even think about leaving it would have to be more than generous. As I mentioned in a previous post on why leaving defined benefit plans is generally a bad idea, buying the sorts of guarantees that go into a pension for life are expensive, and likely to become even more expensive with time. I'm not sure that I would consider the sweeteners of the order of 25% such as those apparently offered by Intercontinental Hotels to be enough compensation for taking on much more risk.