The Government is to announce plans to change the way defined benefit pension payments are indexed, leading to less generous income payments for members.
The Financial Times reports the Government will publish its green paper on DB pensions later today, which will outline proposals to change minimum annual increases from the retail prices index to the consumer prices index. The paper is expected to argue for “limited” changes to the rules to ensure remaining DB schemes are sustainable.
Writing for the Financial Times, Work and Pensions secretary Damian Green says: “When many of these schemes were first set up, Britain was in a very different place.
“DB schemes were made for a world where people don’t live as long as they do now. It is abundantly clear we need to ensure the future of the sector on which so many people depend.”
He adds the paper will look to “encourage debate about striking the right balance between the needs and aspirations of sponsoring employers, members, the Pension Protection Fund and the wider economy to ensure than no one group is disadvantaged”.
The green paper will also examine funding options and investment strategies for DB schemes, and the role of consolidation.
Hargreaves Lansdown head of retirement policy Tom McPhail says: “The UK’s occupational pension system has struggled in recent years to adapt to a world of rapid economic, social and demographic change. This Government consultation is vital if we are to ensure that we have a pension system fit for the 21st Century.”
He adds: “If the Government were to introduce legislation allowing trustees to modify their scheme rules, switching members’ inflation proofing to a lower index, it would substantially improve the funding position of some schemes, at the cost of lower member benefits in the long term.”