Financially “stressed” firms may be allowed to reduce pension schemes
Struggling firms may be allowed to reduce the generosity of their pensions schemes under new proposals announced this week.
In the Government’s new consultation paper on the future of Defined Benefit pensions, ministers have suggested that financially “stressed” businesses should be allowed to revert on promises made to employees about their pension scheme.
Experts predict that as many as 11 million people are members of private sector Defined Benefit schemes, in which the employer promises generous pension payments or a lump sum payment based on the employee’s history of service.
The Government proposed that companies struggling to maintain pension payments could be allowed to adjust for annual inflation using a different index than they do now.
Businesses currently use the Retail Prices Index (RPI), but they could be allowed to use the Consumer Prices Index (CPI) instead.
Unlike the RPI, the CPI does not measure the average cost of housing, council tax, and mortgage interest payments, which typically rise faster than other products featured in both indexes.
This could reduce the per-employee burden by around £20,000, it has been suggested.
Figures estimate that the total combined deficit of all Defined Benefit pension schemes as of January 2017 was £197 billion.