View more on these topics

Providers warn against messing with DB pension promises

Steve-Webb-NAPF-Conference-700.jpg

Providers have raised concerns about the long-term consequences of changing arrangements for defined benefit members after the Government set out its plans to shore up final salary pensions.

Earlier today the Government published a wide-ranging green paper on the options for DB funding reform including “renegotiating pension promises” to members, changing or suspending the way payments are indexed, and greater powers for The Pensions Regulator to intervene in the way schemes are run and managed.

Royal London policy director and former pensions minister Steve Webb says he is disappointed by the lack of firm proposals contained in the paper.

He says: “Even in the area of trying to avoid a repeat of the BHS fiasco, the green paper is remarkably timid on the idea of giving the regulator more power to challenge takeovers which could damage a pension scheme.

“The most worrying proposal is to allow certain schemes to ‘suspend’ annual pension increases if money is tight. With rising inflation, annual indexation is an important part of protecting the living standards of the retired population.”

He adds: “There is a significant risk that relaxing standards on inflation protection with the best of intentions for exceptional cases could be exploited and lead to millions of retired people being at risk of cuts in their real living standards.”

AJ Bell senior analyst Tom Selby says moving indexation from RPI to the Consumer Prices Index could be dangerous as it could see member benefits cut by £90bn.

He says: “The Government is performing a £90bn high-wire balancing act on DB pensions. While allowing scheme sponsors to slash liabilities, could preserve guaranteed pensions for more people, it would also more than likely reduce the value of these pensions and potentially whip up a storm of protest from trade unions.

“Pension promises already built up have historically been sacrosanct, so even a seemingly innocuous reduction in benefits could be viewed as the thin end of the wedge and stir up controversy.

“The green paper avoids setting any firm direction of travel, and instead attempts to set the scene of what is likely to be a fierce debate on the future of DB pensions. Any formal proposals further down the line will need to consider not only any direct impact on DB members and schemes, but also the wider implications for trust in the UK pensions system as a whole.”

Recommended

DWP-Department-for-work-and-pensions-500x320.jpg
11

Govt fires starting gun on future of DB pensions

The Government has set out a range of radical proposals to ensure defined benefit schemes are more sustainable in future. In its green paper on the sustainability of DB pension schemes, published today, the Department for Work and Pensions has kick-started the debate on managing the risks faced by DB pension schemes at the same […]

DWP-Department-Work-Pensions-700x450.jpg
21

Govt looks to cut benefits on DB pensions

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 […]

Advisers braced for further FCA action on DB transfers

Advisers and providers are prepared for further regulatory scrutiny of defined benefit pension transfers after the FCA issued a warning notice related to 500 transfers worth £12.7m. Last week the FCA published a warning notice against an individual after their firms advised more than 700 DB scheme members about the merits of transferring to a […]

Risk-free path to pensions is a myth

Robin Geffen, Fund Manager and CEO Are you taking enough risk? Robin Geffen, Founder of Neptune and Manager of the top performing Global Alpha Fund, discusses the importance of accepting enough volatility in planning for retirement. Click here to read the full article Important information Investment risks The value of an investment and any income from […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. So aside from the fact it probably won’t affect their own gold-plated public sector pensions we all pay for, this could potentially mean that businesses looking to cut their costs, will just target DB schemes even further. Some employers will probably result to the ‘we’re changing your CoE to facilitate this and if you don’t resign it (like a turkey voting for xmas) you’re effectively resigning! And despite all the rhetoric around it being controlled by TPR, the FCA etc, as proven by the BHS debacle, once it’s gone it’s gone!!

Leave a comment