Firms urge Pensions Bill changes
Updated on 18 February 2008
The Government has been warned that companies will continue to close their final salary pension schemes unless it accepts an amendment to the Pensions Bill.
The Association of Consulting Actuaries (ACA) is calling on the Government to remove the ban on so-called conditionally indexed pension schemes, which it claims would help cap employers' costs into the future.
The Pensions Bill Committee is due to debate the so-called 'new clause 5' amendment to the bill this week.
Under current legislation, defined benefit pension schemes, such as final salary ones, must offer index linked benefits on both deferred pensions and ones that are already being received.
But ACA is calling for an amendment to the bill allowing firms to offer conditionally indexed schemes, under which pensions would rise in line with a specific index, typically inflation up to a cap of 2.5% a year, as long as they were not in deficit.
If pension schemes did face a funding shortfall they would stop increasing the value of benefits in line with inflation, but they would restore the link as soon as the scheme returned to surplus.
It warned that unless the ban on these schemes was lifted, companies who closed their current defined benefit pension schemes would have "no credible option" other than to offer less generous defined contribution ones, under which employers shoulder all of the investment risk.
It said that while five million public sector employees were members of open defined benefit schemes, since 1995 the number of people who were members of open defined benefit schemes in the private sector had fallen from five million to just 900,000.
Ian Farr, ACA chairman, said: "If the 'conditional indexation' amendment is rejected by the Bill Committee - and we see no reason why a political consensus should not embrace this initiative across the parties - then Parliament will be held responsible for what is likely to then occur."
A Department for Work and Pensions spokesperson said: "We are interested in the ACA proposals but they would require a significant rewrite of pension law. That should only be done after a full consultation and a detailed examination of the ACA proposals."
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