Posted on August 13th, 2010 | Categories - Pensions
Proposed government changes to private pensions will be a “nightmare for millions”, experts are warning.
The government revealed plans to link pension payments to the Consumer Prices Index (CPI) instead of the traditional Retail Prices Index (RPI) last month. CPI is generally lower than RPI as it does not include housing costs. Pension experts on an online forum called Mallowstreet, say pension figures calculated with the RPI could reduce payouts by a massive 25 per cent and will prove difficult for employers to implement.
Gordon Sharp, an actuary at the professional services firm KPMG, said employers will have to check the small print of their pension schemes to check whether they can adhere to the imposed changes and benefit from lower payouts because some schemes have an in-built clause that links them to the RPI.
He added: “It is going to be a big headache for human resources teams and every individual in the pension scheme; they have to look at the rules and work out the pensions wording”.
Industry specialists believe the government plans were made far too quickly and have called for further discussions before the changes are implemented next year.
A Department for Work and Pensions (DWP) spokesman said the government had “already decided that CPI is the most appropriate measure of inflation for state benefits, [and] it is appropriate to take a consistent approach for private pensions. As the change affects the requirement for statutory minimum increases, schemes may continue to make more generous provision. No consultation was therefore considered to be necessary”.
The changes will clear £100 billion of debt in final salary pensions schemes – the debt currently stand at £239 billion.
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