There is an on-going decline in the number of final salary pension schemes. Many of the companies which have provided these schemes for their employees have found the open-ended liability insupportable, and have introduced schemes under which their contribution is defined by reference to the amount contributed rather than the pension which is to be paid
Providers of on-going occupational schemes are being assisted by low interest rates to increase the size of the transfer payments which are available to members wishing to transfer to other schemes, particularly personal pension schemes which offer the benefit of George Osborne’s ‘pension freedoms’.
In some cases, payments have been offered of up to 50 times the annual income from the occupational scheme, so that someone whose pension would have started at £12,000 could receive as much as £600,000.
However, comparing the benefits of defined benefit and defined contribution schemes is fraught with difficulty and the Financial Conduct Authority has warned of the dangers in making the wrong decision. One of the steps the FCA has taken is to require that anyone wishing to transfer pension rights worth over £30,000 must take financial advice.