UK - Government proposals which aim to stop the decline of defined benefit (DB) pension schemes will fail to achieve their goal but could leave some workers thousands of pounds worse off, according to Standard Life.
The government, which has released its recommendations following a review of the regulatory framework for occupational pensions, proposes to cut the rate of revaluation of deferred benefits by half.
Currently pension entitlements of members who have left DB schemes must be increased in line with RPI, capped at 5%. The Government is proposing to cut this cap to 2.5% for benefits built up, which goes against recommendations made in the review.
With 5.23 million deferred members in UK private sector pension schemes, the change will bring a significant saving to schemes. But it will also leave members with significantly less protection against increases in inflation.
John Lawson, head of pensions policy at Standard Life, said: “We think that this proposed change is unfair to ex-members of DB schemes.
“The rationale for doing it is so that employers will keep their DB schemes open. This ignores the fact that most are already closed to new members and some are shutting the door to existing members also.
“The only thing that this will do is save employers some money at the expense of ex-workers. This could have a disastrous effect on the pensions of ex-workers if we saw double digit inflation again - not entirely out of the question given wage inflation in developing countries and oil and commodity scarcity.”
The proposals are under consultation until 15 November.
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