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ScotEq says talk to an IFA for DB options

Scottish Equitable is advising firms with active defined-benefit pension schemes to evaluate their options with an IFA before making rash decisions such as closing the scheme.

The company estimates there are around 10,000 active DB schemes in the UK, many of which are at risk of being shut down.

In his latest paper, pensions development director Stewart Ritchie outlines four main options that IFAs can suggest to corporate clients still running these schemes. He categorises these as the drawbridge, iceberg, glacier and nuclear options.

The drawbridge option is to close the scheme to new employees but keep it open for existing members. Ritchie suggests that new employees should be offered a form of money-purchase topped up with an appropriate employer contribution.

The iceberg option suggests employers stop their scheme&#39s benefit accrual but express the frozen accrual in terms of final salary at the time of leaving. In this case, he suggests all employees are offered a money-purchase scheme for further accrual.

The glacier option sees the scheme cease accrual but the frozen accrual would be based on today&#39s final-salary rather than the employee&#39s leaving salary. In this case, every employee is treated as an early leaver.

The nuclear option would see the scheme wound up, with all the liabilities secured elsewhere. Ritchie believes this is the least attractive option.

He says: “As there is no such thing as a standard defined-benefit scheme, detailed advice will be necessary.”


Fiona Sharp

Lives: Cambridge, with partner.Born: March 1965.Age: 37.Education: Ashington High School in Northumberland, degree in French language from Bristol University.Career to date: 1984/95 air traffic control officer in the RAF, holding the rank of Flight Lieutenant; 1995/97 financial planner for ProVision (Clerical Medical); 1997/2000 financial adviser at NFU Mutual; 2000/01 IFA at Fiona Price & Partners; […]

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