Jeff Salway: In pensions, taking the cash is not always the smartest move

Fifa's very public dirty washing exercise confirms widely-held suspicions of a corrupt culture in which cash bribes are part and parcel of doing business. And with just a month until the Bribery Act comes into force, new research shows that one in seven employees at large UK firms would offer cash if it meant securing new business. Again, it's unlikely to be a huge surprise (unless you expected the number to be higher).

But cash bribes cease to be reassuring when they effectively rob people of large slices of their retirement savings. That's what can happen when employers try to ease their pension burden by offering employees cash sums to transfer out of their generous final salary pensions.

Last week, pensions minister Steve Webb, pictured below, raised concerns over the use of "superficial" inducements to encourage people to move out of final salary schemes into less generous defined contribution arrangements, or in exchange for cash.

What Webb was pointing out, politely, is that some employers - a sizeable minority - are essentially bribing workers out of their final salary pension schemes. The transfer deals - usually an "enhanced transfer value" of the pension fund plus a cash payment - may sound good, but rarely are they more valuable than the long-term benefits of staying in the scheme.

Thousands of people have accepted cash benefits or enhanced transfer values in exchange for leaving a final salary scheme and more firms are considering the same tactics. They are perfectly entitled to do this, although the pensions regulator last year set out new guidance on the process, stressing that it should be assumed that transfers are rarely in the interests of individuals.

More pointedly, the pensions regulator said cash incentives "are likely to result in less objective decision-making", emphasised the importance of independent advice and urged firms to refrain from pressuring members to accept their offers.

Those warnings reflected growing alarm at the way in which some companies conduct the transfer exercise, with evidence of underhand tactics by firms desperate to slash their pension obligations.

The biggest concern is over the way employers influence the decision-making process. This is often in the form of a deadline by which individuals must make their decision, with the threat of the offer then being withdrawn. This is, of course, grossly unfair when the decision is complicated and could have a profound effect on someone's chances of a comfortable retirement.Advice is offered all too rarely, with firms shying away from the cost of providing it (or, in the worst cases, all too aware that impartial advice would expose their offer as risible).

The documents are typically complex and jargon-riddled, sometimes misleading and usually difficult for the layman to understand without specialist help. While firms have actuaries to help them put together deals that favour the company, individuals are left to themselves to work out whether or not they would be better off accepting.

Employees need to remember transfer offers are designed to minimise the cost to employers while maximising the chances of workers taking them up.

With a growing number of people spending 20 or more years in retirement, sacrificing guaranteed pension benefits is a decision with the potential to undermine or even wipe out years of hard work and savings.

There are exceptions of course, where individual circumstances may mean that transferring out is worth doing. Webb's call for a crackdown came just weeks after the government introduced rules making it easier for those with sizeable pension pots to stay invested indefinitely, rather than having to buy an annuity. So any new rules governing if, how or when people can transfer out of final salary pensions will have to be drawn up in a way that doesn't deter people from saving.

The outcome may well be the abolition of cash payments while allowing companies to offer incentives to people to transfer into defined contribution pensions, into which most people move when final salary schemes close.

But Webb was right to highlight the issue. Scotsman readers will be among those offered transfer deals by employers trying to cut their costs and more will face the dilemma in the coming years. If you're put in this position, take your time, ask yourself why the firm has decided to make that particular offer and take independent financial advice.