Pensions blow for millions

THE pensions of up to 11 million workers could be slashed under measures unveiled yesterday to allow businesses to cut the cost of retirement schemes.

Employers would be able to ditch promises made to staff to prop up schemes which have plunged into the red.

Experts said last night that a pensioner’s income could be reduced by £20,000 across their retirement.

Struggling firms could even opt out of inflation-linked increases altogether if they are doing particularly badly.

The measures are supposed to stave off future pensions scandals such as those involving failed department store BHS and British Steel.

UP to 11 million workers could have the value of their pensions slashed under plans to allow employers to cut the cost of retirement schemes.

Tycoons and big businesses would be allowed to water down promises they made to staff in order to prop up policies that have plunged into the red.

Significantly, they might be able to peg rises in pension payments to a lower rate of inflation which could reduce a pensioner’s income by £20,000. Struggling firms could even opt out of inflation-linked increases altogether.

The measures, unveiled in a Government paper yesterday, are aimed at staving off future pensions scandals such as those involving failed department store Bhs and British Steel.

But they sparked fury last night, with campaigners, MPs and experts warning that they could exploited by ruthless business leaders.

Keir Greenaway of the GMB union said: ‘Allowing schemes to break promises on pensions and raid workers’ retirement savings to cover for mistakes in the boardroom will not be music to the ears of employees.’

Keith Sheehan, of investment firm UBS Wealth Management, added: ‘My concern is that these proposals suggest we are headed down a slippery slope.’

The proposals apply to defined benefit schemes – also called final salary schemes – which promise savers a set amount when they retire. Workers rely on a promise from their employer to pay a certain amount into their pots and typically these schemes rise every year in line with inflation.

However, employers are struggling as workers live longer and the return on investments has plunged, leaving pension schemes dwelling in a collective £196billion black hole.

The Government has now suggested easing the burden by allowing smaller annual increases in pension payouts. Struggling firms would also be able to break the promise they made to savers in pensions contracts and link funds to the lower consumer prices index measure of inflation.

Pension consultant Hymans Robertson said the changes would cost an average defined benefit scheme member £20,000 over their lifetime.

The proposals also included giving more powers to the watchdog Pensions Regulator but crucially not allowing it to block moves such as Sir Philip Green’s sale of Bhs for £1.

When the store collapsed it had a £571million pension deficit affecting some 22,000 staff.

However, business groups greeted the proposals with glee. Neil Carberry of the CBI said: ‘The green paper is a sensible start to what is a complex conversation about how we both boost growth and honour pensions promises.’

Raj Mody, of consultants PwC, said it gives ‘hope to many employers who have struggled with the rising cost of their defined benefit schemes’.

Pensions minister Richard Harrington said the plans highlight a number of options that could ‘improve confidence in the system’.

‘Headed down a slippery slope’