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UK mulls removing DC limited price indexing

UK – The government says it is considering removing limited price indexation from defined contribution pension schemes.

“The government are considering whether to remove limited price indexation from defined contribution schemes in order to help scheme members make the most of their pension,” the Department of Work and Pensions said.

"As the cost of DC indexation falls on the individual saver, LPI affects the size of the annuity they have to purchase, leaving many with a lower starting pension than would otherwise have been the case,” said pensions minister Malcolm Wicks at a conference.

"The annuity choices that people make affect their income in retirement and therefore their quality of life. It is vital that we promote a better understanding of the choices that individuals need to make about annuities.

"We know that the removal of LPI on DC schemes would be welcomed by many scheme members and many within the pensions industry.

“We have always said that we welcome contributions and advice and are prepared to listen. That is why we will be giving this issue our careful consideration."

Alexander Forbes Financial Services’ director Nigel Chambers welcomed the move. “We have always believed that it is unfair for people who may be in ill health, to be forced to take a pension which is 30% lower than it could otherwise have been."

"If LPI from DC schemes is removed, certain pensioners will be able to see a more comfortable lifestyle than would otherwise be the case."

LPI was introduced to provide protection against inflation for schemes did not increase pensions annually on a voluntary basis.

Meanwhile the regulator the Financial Services Authority has bought in what it termed more flexible rules for collective investment schemes, which largely confirm the proposals put forward in a consultation paper last year.

“We now have a modernised, slimmed-down rulebook with prescription pruned back sharply," said Michael Folger, the FSA’s director of conduct of business standards.

David Stachan, the FSA’s insurance industry chief, said in a speech yesterday that an “ageing population and the shift from public to private pension provision” present opportunities “aplenty” for pension providers.

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