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Govt looks to cut benefits on DB pensions

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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.”

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Comments

There are 21 comments at the moment, we would love to hear your opinion too.

  1. The MPs should start with their own scheme then. Followed closely by the FCA etc.

  2. But of course this won’t apply to the gold-played public sector schemes we all pay for!!

  3. Existing entitlement should be protected. New lesion entitlement needs discussion.

  4. The problem with many of these schemes is that they prevail in many places where unions are still strong, there is probably a link. Any changes to the schemes can often be seen as an attack on workers leading to strike action. However, some reason has to prevail, these schemes are extremely costly to run and need to be reviewed.

    As an example of the potential trouble ahead for any reviews of these plans I had a lively debate with a guy about what Tata had proposed happen to the pension scheme in order to reopen the steel plant. His view was that Tata had destroyed the value of the workers pension, effectively stealing money from them.

    Lets see what happens if these changes are filtered down to public sector schemes.

    • The reasons these schemes are costly to run is because Robert Maxwell robbed the MGN pension scheme and denied his workers their future income.

      Under Article 120 (I think) of the Treaty of Rome, pensions are deemed to be deferred pay. Of course the Unions are concerned; have you ever wondered why the Proles so often go to eg. CARE or DC schemes while the Directors somehow keep their original defined benefit basis?

    • The change from RPI to CPI has already happened in public sector pensions.

  5. I agree with Mr Schan, but Mr Hughes’s comment is unworkable and penalises the young of today who already have a much harder position than we did when starting out in work trying to afford to get on the property ladder, bringing up children etc. People with final salary pensions should be grateful for what they’ve got and get real in this low interest/ low inflation world we live in!

  6. Christine Brightwell 20th February 2017 at 1:09 pm

    Actually the gold plated public pension are on average very small pensions and these have already been shifted to CPI. Public sector pay has been lower than the private sector generally, at least it was when I was there, and the pension is something which was meant to balance the lower pay. And yes, existing entitlements must be protected as people – yes they are real people and not faceless machines who work in the public sector, are relying on those entitlements to manage in old age. And people working in the public sector also pay tax.
    Future accrual is a different matter.

    • Under Tony Blair’s administration Public Sector pay rose dramatically and the long-standing arrangement where Public Sector workers accepted lower pay in return for greater benefits disappeared. Up until the financial crisis of 2007 to 2009 the Public Sector enjoyed higher pay and higher benefits (on average) than those in the Private Sector. I do agree that many Public Sector pensions are relatively small but they cost a fortune. A Headteacher local to me retired on a pension of £40k pa recently, not exactly a king’s ransom I grant you, however, to purchase such a pension by a way of an Index-linked annuity in the Private Sector would have cost approx. £1.2m!!! Said Headteacher was on a salary of £70k at retirement – there are not many in the Private Sector who could have saved £1.2m over a working lifetime on such a salary.

    • I’ve not heard the “lower wages than the private sector balancing act” argument for a while.
      Over the years my experience has been that many of the public sector workers with whom I’ve come into contact wouldn’t last five minutes in the private sector.

    • Indeed….Which schemes does this article relate to?
      NHS, TPS and Local GPS are already CPI linked and have been foe a couple of years now

  7. 35 years of giving every last bit of spare cash away in tax cuts for the already wealthy, Austerity for the Worker Ants whilst the income of the wealthiest has doubled since 2010.
    Time for a change.

  8. A slightly misleading headline. The Govt is looking to allow the Private sector some leeway. So far it has no plans to put its own house in order.

    As I posted elsewhere on this site:

    This at least is a tiny step in the right direction. The biggest DB problem resides with the Government. UK public sector pension liabilities make the problems in the private sector look insignificant. The public sector liability accounts for 81% of GDP. What, one may reasonably ask, is the Government doing about this? After all private sector liabilities only affect the employees The Government liability affects us all as it our taxes that go to pay the benefits.
    It is absolutely no wonder that firms are trying to extricate themselves from promises made by other managements in times long gone when economic conditions were far different. The days of open chequebook benefits have gone and it is high time employees, regulators and government recognised this – as they slowly appear to be doing so at last.

  9. You can’t milk a cow at both ends – we all sit on the cusp of radical change in respect of pensions. The political courage doesn’t exist to examine some more obvious areas of change – means testing for state pension ?

  10. The government should not attempt to override contractual benefits.If they think it is sensible to do this then why are they not suggesting that index linked gilts issued by the UK government should be linked to cpi rather than rpi to help with the budget Deficit? I know why – they would be dragged through the courts and contract law would be rubbished.

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