At last... good news on f inal salary pensions
Reprieve for index-linked payouts
MINISTERS will today backtrack on controversial plans that would have wiped up to £70,000 off the gold-plated pensions of private-sector staff. There was outrage last November when the Government suggested ways for bosses to cut the cost of paying defined-benefit pensions to their workers.
One of the damaging effects would have been to stop the pensions rising with inflation.
The proposed changes could also have made staff wait longer for their pensions and stopped schemes paying out to their spouses when they died.
But the Pensions Bill, which is being published today, shows the Government has made a U-turn and scrapped the plans. The decision will be a relief for millions of private-sector workers who are still lucky enough to be building up a definedbenefit pension in their job.
Public-sector staff, who have been called the ‘pensions aristocracy’, would not have been affected by the changes.
Defined-benefits schemes, such as final- salary pensions that guarantee to pay a percentage of a worker’s salary on retirement, were once popular but are rapidly disappearing.
The number of private-sector workers actively contributing to them has plunged from more than five million in 1995 to 1.7million today. When t he Government revealed its proposals last year to encourage bosses to include more e mployees in t he schemes, Pensions Minister Steve Webb said he hoped they would trigger ‘a renaissance’ in final-salary pensions.
The most explosive change would have been the rule that allowed firms to freeze workers’ pensions after they retired.
Annual pension increases are vital if retirees are to protect their payouts f rom being eroded by the rising cost of living. At present, a boss must increase payouts by at least 2.5 per cent a year.
If this had been axed, the impact would have been devastating. For example, a retired worker receiving a pension of £10,000 a year would receive £320,000 over 25 years once the increases were included. But without the annual rises, the retiree would get only £250,000 – a loss of £70,000.
Laith Khalaf, of financial advisers Hargreaves Lansdown, warned that the plan would ‘pull the rug’ from under workers at the last minute.
Last night, a spokesman for the Department for Work and Pensions said a consultation had revealed there was no appetite for the changes.
He added: ‘ We have concluded that introducing legislation to make it easier to sponsor defined-benefit schemes will not be our priority at the present time.’