Pension Cuts

Cuts for Pensions in Payment

Back in 2007 the DWP published its Deregulatory Review of Private Pensions and the proposal to remove indexation of pensions in payment which had been floated was shelved. Unsurprisingly those who advocated this policy have now tried to revisit this issue - see the recent report on the Society of Pension Consultants' proposals (21/09/09).

At its conference on 9 June '06, Christine Farnish, Chief Executive of the National Association of Pensions Funds, called on the government to allow employers to alter their pension promises retrospectively. In the latest government whitepaper on pensions reform it is clear that it is already considering legislation that would allow employers to scale back pension benefits they had previously promised.

John Hutton, the Secretary of State for Work and Pensions, told the NAPF conference that, in the government’s review of pension regulation “nothing is off the table”.

Ms Farnish, in making her case, points to successive legislation that has made pensions increasingly expensive, from the requirement to index pensions for deferred members to a requirement to provide pensions for widows and widowers. The fact that life expectancy has risen so sharply in recent years has also vastly increased the cost of defined benefit pension provision, she said.

In considering whether to allow a roll-back of benefits, the government must weigh the collective interest in the economic competitiveness of businesses against the interest of individuals in getting a fair deal and having promises honoured, she said.

Among the possible changes to company pension promises, Ms Farnish suggested that the government should drop the requirement that employers index pensions in payment in line with inflation, which has been required for all benefits accrued after 1997.

Here's what the government's response to the consultations on the white paper actually said at the time...

The Centre for Economics and Business Research called for 10% cuts for pension benefits (21/01/09)

Even with indexation based on the RPI, pensioners are gradually falling behind in purchasing power - see Indexation