UK - Shadow pensions minister Nigel Waterson has called for the end of mandatory indexation along with other reforms to UK defined benefit (DB) schemes, on the day the UK Conservative Party launched its election manifesto.

Waterson has called for "true risk sharing" in DB pension schemes and said while making changes to the schemes would not be easy, it was the only way to keep them viable.

"True risk sharing in DB schemes would require new legislation that would remove mandatory indexation, make it easier to change Normal Pension Age, address PPF obligations and reforming accounting rules; not clear sailing," the shadow pensions minister said.

"But the end result could see employers being attracted to keep providing DB, who would otherwise have shut the scheme down," Waterson continued, adding there was a "need to think about removing regulatory barriers and developing new models of risk sharing to allow for new options to arise."

Other suggestions made by Waterson include the creation of hybrid DB and defined contribution (DC) schemes. The proposals put forward for a new DB scheme would see employees share the investment risk with employers, while a modified DC scheme would allow for some of the risk to be shouldered by an organisation, meaning the individual pensioner would not be left with the entire burden of risk.

NEST and auto-enrolment were also mentioned by Waterson, who pledged a Conservative Government would introduce auto-enrolment earlier than the current planned 2012 deadline. He was cautious regarding the future of NEST, however, and argued auto-enrolment would not be dependant on the launch of either the Personal Accounts system or NEST.

The Conservative Party today outlined further policies as part of the launch of their election manifesto in London. In addition to re-introducing the earnings link to the basic state pension, the party also said it would put an end to the obligation of buying an annuity when a pensioner reaches 75.

Re-introducing the earnings link for the state pension was also one of the proposals put forward by the ruling Labour Party in their manifesto, launched yesterday. While the Conservatives have so far only committed to this move as of 2015, Labour pledged its start from 2012.

The move came under fire from consulting firm Towers Watson, which argued the decision said more about the power of the "grey vote". The consultancy estimated that reinstating the earnings link would cost £2bn (€2.26bn)in potential savings by the end of the next parliament, while the cost by 2015 is estimated to be £4bn.

Speaking yesterday, John Ball, head of defined benefit pension consulting at Towers Watson said: "The public finances are in much worse shape than they were when the government said it would have to wait and see if restoring the earnings link in 2012 was affordable.

"[This] announcement says more about the power of the grey vote than about the outcome of any affordability test," Ball concluded.

Reversing the effects of the dividend tax credit, introduced by then-chancellor Gordon Brown in 1997, was also promised in the Conservative manifesto, although this would only be considered when resources allowed for the step.

Changes proposed by the UK's third mainstream party the Liberal Democrats, led by Nick Clegg, include reforms to public sector pensions, in a bid to reduce their cost.

The party proposed the creation of an independent commission to evaluate public sector pensions, echoing calls and proposals made by the NAPF last month and prior to its conference.  (See earlier IPE stories: UK pensions body proposes rethink on retirement benefits and LPFA proposes Dutch solution to local council pensions)

Clegg's party has also proposed to reinstate the earnings link to the state pension, and argued that in an effort to help build a satisfactory standard of living, the state pension would either increase by the rate of annual average earnings, the average Retail Price Index or by 2.5% annually.

The Liberal Democrats said this increase would cost £1bn each parliament, however officials claimed they have identified £15bn worth of savings that can be made to compensate for the expenditure.

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