The Chancellor’s 5bn a year raid on pensions will be dwarfed by potential losses to pensioners if inflation protection is reduced in defined-benefit schemes, warns Standard Life head of pensions policy John Lawson.
The Department for Work and Pensions has issued a consultation paper looking at ways to reduce regulation and cut pension costs for employers. It contains proposals from Amicus deputy general secretary Ed Sweeney and former Unilever head of pensions Chris Lewis to lower inflation protection for deferred members.
The pension entitlements of members who have left DB schemes are currently increased in line with the retail price index, capped at 5 per cent a year.
After the indexation of pensions in payment was reduced to 2.5 per cent in 2005, Sweeney and Lewis have proposed similarly limiting the increase for deferred benefits to 2.5 per cent.
Lawson says with 5.23 million deferred members in UK private pension schemes, this would mean a cut in DB liabilities from 1,000bn to 700bn.
He says: “The Chancellor’s raid will be a drop in the ocean compared with the impact on savers if the proposals to strip inflation protection are implemented. This review seems geared around the mindset that DB schemes, even stripped to the bone, are better than money-purchase schemes. They are not.”
Intelligent Pensions tech-nical director David Trenner says: “Brown showed disregard for the long-term health of pensions. The removal of inflation protection could hurt some pensioners but will help protect remaining schemes from collapse.”