A growing economy will prompt Scottish firms to reduce their final-salary pension liabilities by offering better exit deals to employees, a leading adviser has said.
Offers to buy out pension scheme members have in the past attracted the attention of regulators, but new rules on transparency mean employees will have to be made good offers in future, says Stuart Falloon, who heads Mercer's pensions consultancy in Scotland.
"Companies have built up cash piles and as they move into a growth phase they are looking for rewarded risks, but the pension scheme may be considered as a risk they don't want on their balance sheet," Mr Falloon said. "We will see more activity."
Mercer expects to see companies offering retiring employees alternatives to the traditional inflation-linked pension with lump sum option. "People may be able to trade off future pension increases for a flat pension starting at a higher level, which is great for the member but also for the company, as it will cost less to buy out the pension scheme with an insurer," Mr Falloon said.
But employees will now have to see clearly the value of any benefits they give up, which should mean better "transfer value" offers for cashing in the pension "Traditionally, transfer values have been pretty poor value for money, but all people saw was a big number, not realising the value of the benefits they were giving up was an even bigger number," Mr Falloon said.
"There will be improvements to encourage people to come out, because ultimately that is going to be cost-effective for the employer. I think it will be a much more honest approach, because the way the regulations are now you have to tell people the advantages and disadvantages."
Meanwhile, pension schemes will suffer more pain from the Bank of England's promise of continuing low interest rates, pensions expert Dr Ros Altmann has said.
Even though FTSE-100 employers ploughed £20 billion into their schemes last year, and equities rose by 18%, deficits continued to rise to £43bn due to the fall-out from low bond yields and quantitative easing (QE), Dr Altmann said, adding: "The situation is far worse for smaller companies and charities, which are unable to afford sufficient contributions to fill their deficits... When these employers fail, all their members will see reduced pensions in the Pension Protection Fund. This is a hidden cost of current policies."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article