UK - Consultants are urging the government to remove limited price indexation for defined benefit schemes to create a "level playing field" for all forms of pension provision.
Pensions minister Baroness Hollis confirmed that the government would proceed with plans to remove LPI from defined contribution schemes during the Pensions Bill’s second reading in the House of Lords.
LPI applies to contracted-out rights accrued between 1988-1997 and to all rights accrued since 1997. For personal pensions, indexation applies to protected rights accrued since 1988.
Consultants have welcomed the move and point out that it will simplify DC schemes which are struggling under several indexation regimes. But they believe the government must go further and remove LPI from DB schemes.
Watson Wyatt senior consultant Stephen Yeo said: “One of the major failings in pensions has been the imposition of LPI on DB schemes and the government has the opportunity to put that right.”
And Mercer Human Resource Consulting worldwide partner Dick Strattan claimed that unless the government removed LPI it would hasten the end of final salary schemes.
He said: “Where is the logic in not doing this for DB schemes as well? It differentiates between DB and DC schemes in a way which is likely to be yet another nail in the coffin for DB schemes because they do not have the flexibility.”
Alexander Forbes Financial Services director Nigel Cham-bers added:
“Now that the scourge of LPI has been removed from DC pension schemes, certain pensioners may be able to see a more comfortable lifestyle than would otherwise have been the case.
“We hope that we may now see a similar bold app-roach to simplification in the area of guaranteed minimum pensions for defined benefit arrangements.”
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