Employers Could Be Freed To Cut Employee’s Final Salary Pensions By Up To 30%

Proposed law would allow companies to reduce their workers’ pensions without seeking court’s approval.

MPs in the Work and Pensions Committee are considering freeing employers who are struggling financially to reduce their workers’ final salary type pensions without having to appeal to a court.

Current Promises Are Unsustainable

Pressures created by longer life expectancies and poor investments have led to a record pension funding shortfall in excess of £1 trillion. Sustainability questions mean that more than 11 million workers’ pensions could be affected.

The government is projecting to need to use its financial support, the Pension Protection Fund to save hundreds of pension schemes. Where used, payouts for workers will be reduced.

‘Conditional Indexing’

‘Conditional Indexation’ is viewed as a last resort, letting a companies own financial health inform the annual rises or ‘boosts’ ideally for a short time period.. It would allow annual pension uplifts to be as low as 0%. over the average 25 year retirement, this would mean total retirement income to be reduced by 30%.

Malcolm McLean, a senior consultant at pension firm Barnett Waddingham, says that although designed purely as a means of saving pension schemes genuinely in trouble, the ‘conditional indexing’ proposed could become a “free for all” for unscrupulous companies. He urges lawmakers clearly set out rules addressing this.

According to Calum Cooper, a partner at pension consultancy, Hymans Robertson if used in the manner it is intended, conditional indexation would be “just a temporary measure to be used whilst a sponsor is having difficulties”.

Other Measures Are Being Proposed

Another proposal is to change the minimum annual pension increases from the Retail Price Index to the historically lower Consumer Price Index. Over the average retirement, the worker will again lose out, this time losing 13% of their pensioner benefits.

Paul Hoskin

@HoskinFinancial

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