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No stays as 'no' on conditional indexation

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  • No stays as 'no' on conditional indexation

UK - The UK's Department for Work and Pensions has said it believe there is sufficient benefit in allowing occupational pension funds to apply conditional indexation but it will do further work next year into the feasibility of introducing collective DC schemes and risk sharing.

A report unveiled today on the responses to a risk-sharing consultation by Lord Mackenzie, parliamentary under secretary to the DWP, revealed the government is unwilling to introduce any change because there were such differing opinions from representatives bodies, consultants and indivuduals on the pros and cons of allowing the indexation of pensions in payments to be varied.

We do not feel that the responses to the consultation provided a workable consensus on conditional indexation at this time," said Mackenzie.

One of the strongest argument made against its introduction came from Help the Aged, a lobbying body working for retirees, as it argued the estimated £1bn (€1.12bn) in savings each year to employers would instead have to be financed through the future benefits for members, namely pensioners, "who had the least capacity to compensate for those losses in other ways", suggested the government.

The DWP noted conditional indexation is applied in the Netherlands, but as part of its review into the experience of pensions regime internationally it found many of the lessons applied elsewhere in the Netherlands could not necessarily be applied the Netherlands has a stronger sense of social partnership in pensions, compared to the UK.

It also raised serious concerns about pension scheme members' understanding of conditional indexation

Elsewhere within the response report the DWP said it is still willing to discuss further risk sharing potential in the spring, albeit the Association of Consulting Actuaries, which has been pressing hard for the allowance of risk sharing, notes this means any potential changes eventually agreed will not be actioned within the 2008 Pensions Act.

And fresh work will be conducted on the details behind possible introduction of collective defined contribution (DC) schemes.

In particular, the government recognised the development of some form of collective DC plans "commanded significant support in principle" from the industry but needs to investigate:
The extent to which designs can be accommodated within existing regulatory framework;
The need to prescribe a model scheme in legislation;
How such schemes might interact with EU legislation, such as the Occupational Pensions Directive, and
The interaction with Section 67 of the Pensions Act 1995.

Concerns were raised on collective DC about "communication challenges" for such schemes as well as the technical and analytical policy issues.

"We want to strike that balance between easing the burden on employers who run occupational pension schemes and ensuring that the members of those schemes have the protection they would expect," said Lord Mackenzie.

"The work we will take forward next year will give all of those involved the chance to explore how we can bring forward changes that make it easier to share pension risks.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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