We have seen a marked increase in the number of transfer incentives being offered for members of defined benefit schemes to leave their index-linked benefits in exchange for cash up front or an enhanced transfer value.

It is the cost of such pension schemes that is driving this state of affairs. KPMG’s Pensions Repayment Monitor 2010 report outlines that the deficit existing in FTSE 100 pension schemes was around £50 billion in 2009, with an estimate that this increased to £65 billion by the end of June 2010.

This report details that “companies are now spending more on deficits than funding pensions for current staff. Nearly £2 out of every £3 spent in 2009 went on deficit reduction”.

The merit of an employee accepting such an offer is debatable and general consensus is that it is not likely to be in his or her interests.

Pensions minister Steve Webb warned against these exercises particularly in cases where incentives are offered to vulnerable people before Christmas.

In the case of inflation, the Institute of Fiscal Studies has found that pensioners have experienced higher rates of inflation than non-pensioners over the last ten years.

Therefore, giving up future increases in line with inflation may seem disagreeable.