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The Actuary The magazine of the Institute & Faculty of Actuaries
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Employers look to cash options to complement pension offering

UK employers are showing increasing interest in offering workers a cash savings account to use during their retirement instead of - or on top of - a monthly pension, according to PwC.

The rising state pension age, the recent liberalisation of rules around having to use an annuity to provide a monthly pension income, and changing needs of people in retirement, mean that some workers will value more freedom as to how and when they use their retirement savings.


Marc Hommel, PwC pensions leader, said: "With greater diversity in retirement patterns, wealth, health and lifestyles, an increasing proportion of people are going to value the ability to draw on the proceeds of their retirement savings account as and when they need to, as opposed to having to take a regular monthly pension.

"Last year we started working with a trickle of major employers regarding modernising their defined benefit and defined contribution pension schemes, but that trickle has now turned into a steady stream.

"For some employees the advantages of having a savings account at retirement - as well as or instead of a monthly pension - include greater flexibility to access and use funds when required. This may appeal to those who, for example, anticipate working part-time or want to keep more saved for when they get older, in anticipation of needing long-term care. A further advantage is that on death any remaining proceeds can be passed onto dependants."

There are advantages for employers too, according to PwC, with the removal of risks associated with rising life expectancy and from uncertain investment returns on the assets being used to finance the pension.

Mr Hommel added: "Some employers are considering wholesale redesign of their pension scheme benefits while others are giving people additional choices. As with any options being offered to pension scheme members, it’s important the terms are fair, and that the risks and benefits are appropriately communicated so that people can make truly informed and well advised decisions. Cash balance plans will not be appropriate for everyone but provide a useful choice."