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Last Updated: Monday, 28 June, 2004, 16:13 GMT 17:13 UK
Firms consider cash for pensions
A calculator and coins
Would you prefer cash to a pension?
Companies are considering dumping pensions altogether and offering cash incentives to employees instead.

According to a survey by Towers Perrin, 24% of all UK companies are considering, or would consider, introducing a cash option.

The human resources consultancy said it signalled a "final stage" in employers' attitudes to their pension liabilities.

Many firms have already cut back more generous final salary pension schemes to new or existing members.

Lower cost

As many as 14% of the 186 FTSE-350 firms surveyed said they were considering, or would consider, swapping cash for pensions completely.

Final salary or so-called defined benefit schemes pay out two-thirds of final salaries at retirement, but many employers have closed them to new members and even existing employees.

Companies have replaced them with money purchase or defined contribution schemes, which are much less risky and burdensome for employers.

With this type of scheme, the final pension a worker receives varies according to the level of contribution and investment performance. The final payment is not guaranteed or underwritten by the employer.

Peter Routledge, partner at Towers Perrin, said: "If stage one was to close pensions to new hires, and stage two is to close defined benefit to existing employees, we are already seeing evidence that the final stage might simply be to replace corporate pension plans with a cash allowance and let the individuals take full responsibility for planning for an income in retirement."

Your comments:

Since the job for life is dead and buried it doesn't seem so unreasonable to let people design their own pension. Some might want to take highly speculative positions while others would simply put the money in the bank. Some would spend it on beer, but you can't restrict a system just because a few abuse it. It would certainly be good to have the option of taking the money in cash rather than as a promise of future money assuming I live long enough to claim it and the government hasn't taxed it into oblivion by then.
John B, UK

As I work in IT, I've moved around a number of companies during my working life. Because of this I have always had a personal pension plan, collecting a few years worth of final salary pension in each company would never have helped me. This type of change would benefit me as I would finally receive the additional income I have been missing in the past. The only people is that many people will just take such payments as an increased salary without any focus on their future pension needs. This will mean that the government will have to then start to force people to make pension payments.
Roger, London

Given the way things are going it would be better to get a higher salary and no pension. Money in the bank is the only sure thing these days. We all know our state pension is going to be worthless so drop that bit of the tax and National Insurance too. Then each of us takes care of ourselves and our families with the state only worrying about those who can't look after themselves. In 30 or 40 years time when people discover their pensions won't keep them fed and housed there will be uproar. Better for us all to be told the truth now and then allowed to make our own provisions for our futures.
Matthew Knowles, Loughton, UK

In an ideal world employers should have a sense of social responsibility and provide a pension, but the reality is that pension schemes have become too expensive, so the cash option is a golden opportunity for firms to reduce costs associated with retirement.
Trevor Martin, Croydon, England

This would make the situation much worse. Many people would simply spend the extra money they found in their pay packet and end up with only the state pension and poverty in retirement. The advantage of a company pension scheme is that you never see the money so can't spend it. I am in a final salary scheme and just view it as "tax" and think nothing more of it.
Roger, UK

No. A few quid extra is no replacement for a pension scheme. People on low incomes will simply spend the cash and be left with nothing in retirement, and the state will have to bail them out. Widespread money purchase and stock-exchange pensions will also be a nightmare for those retiring during a stock market low - how would you feel if your retirement date was just after black Wednesday? The government and industry have got to come up with a better plan than this for all our sakes.
Tom Wright, London, UK

Employers should do more not less to encourage employees of the need for pension provision. It is far too easy an option to just hand out some cash and have done with the problem but this does not address the issue. If an employer values its benefits programme but wants to control the risk, then a good non-contributory defined contribution scheme, with a decent employer match on top is the way to go. If an employer really values its employees, pensions can't be ignored as it will come back to bite them.
David Alchin, Kingswood

Once again short-termism wins the day. Did business complain when stock market highs gave them pension holidays? I don't recall our captains of industry howling with anguish then. Nor when they encouraged pension schemes to give early pensions to people they wished to make redundant. What we need now is to take a long-term view.
Stephen Hicks, Stone, Staffs

I would welcome this sort of scheme, because as there is no such thing as a job for life and employment is more flexible, then sorting your own pension gives you more freedom to move employers. However the tax system needs to be overhauled with regard to pensions, as no longer would you get any direct benefits and would have to reclaim any overpaid tax from the state. Perhaps self assessment can be changed to allow direct payment of lump sums into your pension plan.
Robert, Peterborough

The idea works in theory, but breaks down in practice. A large number of people will not invest the money for their retirement and will spend it. That leaves the problem of a poverty timebomb in the future. Any future government is unlikely to allow people to live in poverty, and so will provide welfare benefits, paid for in part by the taxes on the pensions of those who did save sensibly. This is a "double-hit" on the taxpayer and is unfair.
Martin, UK

The sooner the government recognise that their plundering of pension dividend tax credits has hit the people it purports to protect the better. This has been caused by a labour government and they should face up to the social responsibility. There is an entire generation growing older with no idea whether cash purchase will support them in their retirement - a timebomb waiting to explode. For most employees in the UK, defined benefit is the correct thing.
Tim, Wales

If this is the way pensions are going it should also apply to pubic sector workers.
Paul, Uttoxeter, UK

There's nothing wrong with people being given more choice over what to do with their money, especially in a modern job market where very few people stay at the same firm. If people decide they're going to squander the cash alternative rather than investing it in a pension then they have no one but themselves to blame when they are either living on low incomes or forced to work later when the demographic time bomb causes state pensions to become almost worthless.
Wayne, Oxford, UK

Surely it is time for a bit of realism here. If people are not providing for themselves they will end up falling back on the government. So why doesn't the government start a compulsory pension scheme which would give a reasonable pension at 65. No early retirement or cash drawdowns, just a decent living amount. Yes it would be viewed as another tax but if the money was ring fenced it would be hard to argue about
Peter, London

A fab idea. Why not just give everyone free lottery tickets while we are at it? Retirement is a third of your life without sufficient funding. We are storing up a generation of paupers. Employers and the government have a duty to ensure providing for your pension is as easy and as simple as possible. This idea allows both parties to wriggle out of their responsibilities.
John Joe , Edinburgh

I don't see any suggestion that the money would be forced towards a stakeholder pension. Have we forgotten all about them already.
Richard, Milton Keynes, UK

When defined contribution schemes replaced defined benefit schemes companies paid out less. If this goes through they will pay out less again, so no, it's a dreadful idea and I won't go anywhere near such a scheme.
Ian, Herts, UK




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