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Govt drops plans to scrap DB pension inflation link

The Government will not press ahead with proposals that would have allowed employers to reduce payments to defined benefit scheme members.

The original Department for Work and Pensions ‘Defined Ambition’ consultation set out plans to give DB sponsors greater flexibility over how they pay out pensions to members.

Ideas floated in the consultation included removing the requirement for schemes to link pensions in payment to inflation; allowing employers to transfer members to a nominated defined contribution fund if they leave their employment before retirement; and giving employers freedom to adjust the scheme pension age.

The DWP says it has dropped these reform proposals – labelled ‘DB lite’ – after research suggested the changes would need to apply to accrued pension rights in order to make a difference to employers.

It says: “It was clear that there are already flexibilities available to employers, such as linking the scheme’s normal pension age with state pension age, to reduce cost and volatility without the need for new legislation.

“We have therefore considered the consultation responses and have concluded that introducing new legislation, to make it easier to sponsor DB schemes, will not be our priority at the present time.

“Separate research findings have shown that, to make enough of a difference to employers, the suggested changes would need to apply to accrued pension rights. We are absolutely clear that we will not be making changes that affect past accruals that could reduce the pension benefits that individuals have already built up with their employer.

“The view most respondents expressed was that the greater prize was to deliver changes that enable collective schemes and greater ability to share risks in the DC world.”

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