UK - Firms which close defined benefit schemes risk lengthy legal wrangles when disgruntled workers realise the benefits they have lost.
Buck Consultants warns that action is likely when employees find out that their pensions are much lower than they expected.
Buck Consultants head of technical services Kevin LeGrand said: “There may be an increase in attempts at legal action by individuals or groups of disgruntled employees when the full extent of their situation dawns on them.
“Even if these are not successful, considerable time and cost could have to be expended to refute them.”
LeGrand also said that employees would lose out because defined contribution schemes tended to follow non-optimal investment strategies and lacked the same level of knowledge as well-advised scheme trustees.
LeGrand added: “Defined benefit schemes can invest on a pooled basis more effectively and for longer as they do not have to switch each person’s ‘pot’ on their approach to retirement.”
Although many in the industry cite cost cutting as the main reason for the shift away from DB provision, few companies are explaining exactly what this move means for their workers.
Diageo group pensions and benefits director Steve Mingle said: “If you are going to move to a cheaper scheme, you must tell your employees what it means for them.”
He noted: “Too many employees in this situation are being misled into thinking this move is cost neutral for them.”
By Jonathan Stapleton
Jonathan Stapleton asks whether newly-accredited professional trustees should be a statutory fixture on pension scheme boards.
Savers are being warned by the Insolvency Service to guard their pension pots from investment scammers and negligent trustees as it winds up 24 companies.
Respondents say they should only be required in certain situations as the system is not broken.