FTSE Firms Pay Out Massive Golden Goodbyes

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Retirement savers with a workplace final salary pension were offered huge golden goodbyes to give up their rights in the scheme.

Companies were offering an average of £236,000 in cash to workers willing to leave their pensions schemes.

The figure was £2,000 up on the £234,000 offered at the end of 2016 and £33,000 more than extra cash available on 2015’s £203,000.

But the golden handshakes varied wildly throughout 2017 – with a £17,000 or 7% difference between the lowest and highest average offer each month.

Why do firms pay so much?

Sankar Mahalingham, Head of DB Growth at Xafinity Punter Southall, said: “In 2017, transfer values have remained at or around historic highs, and we have continued to see significantly more transfer values being taken than in previous years.

“We have seen some volatility in transfer values, with changes in gilt yields being the main driver, a result of a number of issues such as the uncertainty caused by the General Election, the first rise in the Bank of England Official Bank Rate for over 10 years and commencement of Brexit negotiations.

“Transfer values remained relatively calm over the final quarter of 2017 however and finished the year at much the same level that we saw at the end of 2016.”

The Xafinity index tracks the transfer value a direct benefit scheme would pay a 64-year-old entitled to an index-linked pension income of £10,000 a year on retirement at the age of 65.

Thousands uncertain of pensions

Thousands of workers are seeking to transfer their pensions out of workplace direct benefit schemes as FTSE100 companies run into underfunding problems.

Around 4,500 retirement savers in the British Steel Pension Scheme have applied for transfers, while thousands of others at the now defunct British Home Stores and Carillion are reviewing their options.

Others at the Royal Mail, BMW, Capita and British Airways are also uncertain their schemes can fulfil their commitments to pay out as promised when they come to retire.

Pension deficits run into billions of pounds, and some firms, such as supermarket and home improvement chain Sainsbury would have to pay more than double the company’s market value to fully fund their pension schemes.

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