Bosses, scared their companies could go under, are desperately trying to get their pension cash out, an expert has warned.
Adrian Pickersgill, of Stratford-on-Avon-based Self Chartered Financial Planners, said he had been contacted by several, desperate to exit final salary schemes and worried they could lose thousands of pounds.
Their fear was that the firm and its pension arrangements were no longer as sound as perhaps they once were, even just a few months ago.
“These have been directors of the companies concerned phoning us up looking to transfer their money out,” he said.
“And if that is happening then the businesses concerned must be in jeopardy, because they should know if anyone does.”
They were even prepared to take a hit on the transaction, knowing they would lose out, just to gain overall control.
Final salary schemes have traditionally been seen as the best type of pension.
They promise to pay a retirement income based on a percentage of your salary every year for the rest of your life.
The amount you get depends on how long you have spent working with the respective employer and how much you were earning at the time you gave up work – your final salary.
The sum is typically between a half and a third of your salary.
However, Revenue and Customs rules allow members to build up a pension equivalent to two-thirds of their final salary.
And it is those with very substantial pensions to look forward to, perhaps in the region of £80,000 a year, who are taking fright.
Because if their company does crash, and the final salary pot is underfunded, then the Government’s Pension Protection Fund will only cover them for 90 per cent to a maximum of £27,770.
Mr Pickersgill said: “Those in final salary schemes are highly exposed to the performance of their companies in three ways – their job, their shares and share options, and their pension.
“In the current difficult economic climate their share options have vanished, completely worthless, their job is less secure and their pension scheme is not fully funded.
“The question is how best to protect their pension ahead of the possibility that the company could go bump.”
Were that to happen, with the money remaining in the final salary scheme, then potentially the individual concerned stood to lose a “massive” amount.
“People are telling us they could not afford their lifestyle on that basis,” said Mr Pickersgill.
And so they were prepared to move the money into a personal pension scheme even though they were aware it was not the best time to pursue the transaction and their ultimate annual payout would be less.
“They are saying they could get by on a £60,000 pension but could not live on £27,000.
“They know it is not a good deal but they are taking control back.”
Mr Pickersgill acknowledged that people had in the past been poorly advised to pull out of final salary pension schemes when they shouldn’t have done.
“Yes, some people were badly ripped off,” he said. “There were big commissions on offer and nobody did the research.”
However, each case had to be looked at individually as moving out of such a scheme may not suit everyone. The risks of taking such action and the strength of the firm and the actual scheme should be considered. Therefore, anyone considering such a move should seek the advice of a qualified IFA.
And it was still the case that some final salary schemes were strong, the company was strong and in such circumstances people would likely be best staying in.
But in some ways, final salary schemes were products of an era when employers had a paternalistic outlook towards the welfare of their employees. That attitude had more or less gone out of the window in the 1980s. In recent times many employers had simply closed their schemes either entirely or to new entrants.
In recent years people had seen pension scandals where crashed companies had left funds in disarray.
Now, the stock market meltdown was threatening more companies, with some big names like Woolworths and MFI going into administration.
“People have decided you cannot trust the government on pensions and now they realise that you cannot simply hand over responsibility to employers either,” said Mr Pickersgill.