Pensions minister Steve Webb’s plan to scrap inflation linking for defined-benefit schemes will only affect future retirees.
Under current rules, occupational DB schemes must increase pension payments by the limited price index, which is capped at 2.5 per cent.
In an interview with the Financial Times on Saturday, the Liberal Democrat MP (pictured) said removing the link to the LPI could reduce employers’ costs and encourage firms to retain DB schemes.
He said: “I am saying we shouldn’t just let the pendulum swing all the way to pure defined contribution.
“What I want to do is try and create an environment where the pendulum can swing back a bit.
“If by reducing the regulatory burden we could encourage firms running entirely voluntary occupational schemes … to think ‘well actually, I’ll take on a measure of risk [sharing]’, then that seems like a world we could move towards.
“Clearly indexation is the biggest cost [for companies].”
A Department for Work and Pensions spokeswoman says: “As decline of final salary pension schemes continues, it makes sense that we think about how we can best support companies to continue to offer good quality pensions.
“It is important that we have a frank debate and open exchange of ideas, so that schemes have the flexibility to innovate.
“We have committed to reinvigorating private pensions, and this is part of that debate, but no decisions have been made.
“Our focus however is future pension provision, not today’s pensioners.”