The Government announced plans yesterday to effectively reduce the value of millions of pensions in payment by linking them to the Consumer Prices Index (CPI)  rather than the Retail Prices Index (RPI). So what does this mean and who will it affect?

Whilst much of the reporting has used the terminology ‘private pensions’ the announcement has no impact on individual or group  stakeholder or personal pensions (collectively known as ‘defined contribution’ or ‘moneypurchase schemes’). Members of these schemes will continue to choose the level of increase (if any) appropriate to them at retirement.

The change, proposed by Pensions Minister Steve Webb, would reduce payments from the following arrangements: state pensions, final salary or ‘defined benefit’ schemes and public sector schemes.

The announcement was welcomed by companies still operating final salary schemes as the smaller increases on pensions in payment could reduce the liabilities they face - although a technical quirk suggests that this may not be the case: many schemes match future liabilities in the gilt market and gilts currently match RPI and are not set up to offer a CPI increase and so may not be able to provide any saving to scheme trustees.

EBS’ MD, Joe Walsh, will shortly be  attending a function in Westminster ‘Pensions in a new Parliament’  at which Pensions Minister, Steve Webb is guest speaker - we will keep you informed of any developments via the website.

If any of your employees raise questions regarding these changes please feel to refer them to our website or your usual EBS Consultant.

Posted in business |