Companies could offer less generous pensions under government proposals
The government is proposing to allow businesses to remove the link between retirees’ pensions and the retail price index (RPI), in a move that could alleviate the pressure on the UK’s drastically underfunded defined benefit (DB) pensions regime.
The plans – contained in a new green paper published by the Department for Work and Pensions – are likely to prove controversial, with one estimate claiming they could cost the average employee £20,000 over the course of their retirement.
The move could save companies a total of £90bn, by linking annual increases in retired employees’ pensions to the less generous consumer price index (CPI) rather than the RPI.
It is described in the green paper as a “statutory override to allow schemes to move to a different index, provided that protection against inflation is maintained”, and is a response to concerns raised by many larger businesses that lengthening lifespans and volatile bond markets, as well as historic underfunding, mean many DB schemes have dramatic deficits.
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