The Government is to announce plans to change the way Defined Benefit (known as ‘final salary’) pension payments are indexed, leading to less generous income payments for members.
The FT reports the Government will outline proposals to change minimum annual increases from the retail prices index (RPI) to the consumer prices index (CPI) in it’s latest Green Paper.
The paper is expected to argue for “limited” changes to the rules to ensure remaining DB schemes are sustainable.
Writing for the Financial Times, Work and Pensions secretary Damian Green says: “When many of these schemes were first set up, Britain was in a very different place. DB schemes were made for a world where people don’t live as long as they do now. It is abundantly clear we need to ensure the future of the sector on which so many people depend.”
If the Government introduce legislation to allow trustees to modify scheme rules to switch to CPI, it would substantially improve the scheme funding position at the cost of lower member benefits over the long term.
If you would like more information on retirement planning centred on your personal circumstances, please contact us >>