Governance

Government could save private final salary schemes

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Governance
Written by Gary Howes   
Wednesday, 28 July 2010

However no doubt many will be worse off.

 

While the human cost of government plans to change private sector pensions will see many people worse off, the move will reduce employers’ financial uncertainties and may enable them to keep their final salary schemes open.

That’s according to leading independent pension specialist BBS Consultants & Actuaries which is encouraging employers to check their terms and conditions to see if they will be able to take advantage.

The coalition government has already announced its intention to link public sector pension payments to the Consumer Price Index (CPI) rather than the typically faster-growing Retail Price Index (RPI) and Pensions Minister Steve Webb has said the private sector should follow suit.

“From an employer’s viewpoint this could be an opportunity to improve their funding position by bringing down the cost of providing final salary pension benefits,” said Michael Harvey of BBS Consultants & Actuaries.

In recent years, rising life expectancy and growing deficits have led to widespread closures of final salary schemes in both the public and private sectors.

“Employers tend to scrap defined benefit or final salary schemes because of the uncertainty about the significant costs that could arise,” said Mr Harvey.

“However, while the switch from RPI to CPI-linked pensions will mean many people will see pensions increase more slowly, this move should encourage employers to consider keeping their final salary occupational pension schemes going, providing them with a tremendous recruitment and retention tool.”

It is estimated that around three quarters of all current UK occupational pension schemes could be affected by the switch to CPI-linked pensions.

“What it will come down to is the detail in the terms and conditions of each individual scheme as to how members might be affected,” Harvey said.

“Employers need to act now to find out what their terms and conditions specify and seek professional advice about whether or not they might be able to capitalise on these changes,” he added.
 

 
 
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