The government will not allow conditional indexation even if it is recommended by the Work and Pensions Committee's (WPC) inquiry, Steve Webb has claimed.
Conditional indexation is where a defined benefit (DB) scheme in dire straits could temporarily stop paying any annual pension increases for a limited time until it moves to a healthier state.
The former pensions minister's comment comes after WPC chairman Frank Field MP last week said the committee's inquiry into DB regulation would consider the policy among others. However, any recommendations it makes must be agreed by the government before policy changes can be made.
Webb (pictured), who is now Royal London's director of policy, said the coalition government's failure to introduce the policy for future accrual was an indicator of its future for past accrual.
Speaking on 6 October at an Allen & Overy seminar, he said: "Although it's a perfectly rational way to run a pension scheme, given that the coalition couldn't get [conditional indexation] through politically for future rates, I don't see it happening [for past accruals]."
However, he added, "it is not true that we need to rip up pension promises".
In evidence submitted to the inquiry, some firms said trustees should be able to use the variable measure to ensure schemes remain affordable.
Webb added companies may have to reconsider their dividend policy as DB schemes become more expensive in the wake of the Brexit vote.
"Pensions depend on a strong economy, so if Brexit trashes the economy, it trashes the pension system," he said. "Brexit is seriously bad news for the economy and, in the longer term, it is bad news for our pension system; it is low interest rates for longer.
"In the DB world, one thing to look out for is the impact on dividend policy. It's pretty clear that there will be an awful lot more scrutiny on dividends. It is going to be hard - if you have a big hole in your pension fund - to pay dividends."
In August, plastic manufacturer Carclo warned it might not be able to pay its final dividend of the year due to its rising pension deficit, which it blamed on falling discount rates as a consequence of the Brexit vote.
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