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Categories:Pensions,Politics

Govt DB index plan targets future pensioners

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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.”

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Readers' comments (3)

  • The fundamental truth behind the lack of proper pension provision lies with successive governments not putting into place sufficient incentives for people to build up funds, then robbing those funds of the tax credits on dividends and then changing from graduated pension, to SERPs then S2P and now NEST.

    Pension planning is an art, it needs to be sold as a necessary part of overall financial planning and advisers need to be incentivised to provide advice and guidance which remunerates them properly for their services.

    Taking away a commission payment option from personal pensions is a sure way to deter potential investors from taking up this style of investment.

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  • Politicians keep saying the same old rubbish!
    Firstly, most retirees now living on incomes from DB schemes were, in the main, FORCED to join a pension scheme. This is what happen to me when I worked for the Post Office.

    Secondly, personal pensions have become less and less attractive by all the changes and loss of certain benefits. Only 'well off' people actually pay into a pension scheme.

    Thirdly, reducing an employers liability on retirement income WILL NOT encourage them to bring back or stop them from closing DB schemes, the damage has already been done.

    UK Gov needs to grasp the nettle and sort out a decent pension from the State, funded from contributions and investment and bin NEST/SERPS/SP2 etc. If you want a more comfortable retirement, pay for it.

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  • Sorry but this should not be allowed to happen.

    I used to work for a life office and the value of final salary pension benefits were taken into account when pay reviews came around. I was quite happy with a lower salary and pay rises taking into account that I would reap my reward when I retired. This benefit will be eroded if this is allowed to happen.

    A fairer option would be a higher starting pension income to compensate me for the loss of indexation - just like the decision when an annuity is purchased.

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