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Govt told to scrap DB pensions indexation rule

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The Government is facing calls to scrap rules which force defined benefit pension schemes to increase payments in line with the limited price index.

Under existing rules occupational DB schemes must increase the value of pensions paid by at least LPI, which is capped at 2.5 per cent.

The LPI rule applies to all DB pensions that have accrued since April 1997.

The Association of Consulting Actuaries says this should become an optional requirement to help ease the funding pressure on DB schemes when contracting-out is abolished in 2016.

The end of contracting-out and the introduction of a new flat rate state pension worth £144 a week will see employers with DB schemes lose their 3.4 per cent National Insurance rebate. 

ACA chairman Andrew Vaughan says: “Optional LPI would allow sponsors of defined benefit schemes some breathing space ahead of what certainly I hope will be a raft of new pension options and flexibilities that will emerge from the ‘defined ambition’ project.

“It doesn’t mean all employers have to make the change. If they wish and can afford to continue to automatically index pensions in payment then they should be free to so do.

“The change I propose here would not affect accrued rights.”

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