The UK’s pension minister has voiced support for changes to indexation methods for defined benefit (DB) schemes.
Pension schemes such as Barnardo’s have been attempting to change indexation rules to allow switching from the retail prices index (RPI) to the consumer prices index (CPI).
CPI is typically lower.
Speaking in front of the work and pensions committee this morning, Richard Harrington – appointed pensions minister in July – said he believed trustees should be allowed to make the change but warned against altering rules “willy-nilly”.
“We have to remember the reason these clauses were put in was to protect pensions – not to go into a deep discussion about the differences in calculations,” he said.
“In principle, I’ve got no problem with trustees having the right to change indexation as long as pensions are protected as intended.”
Harrington acknowledged that the potential impact on liabilities of a switch to CPI was “very significant” in terms of “newspaper-grabbing headlines”, but he also emphasised the importance of maintaining pension funds’ credibility.
“We can’t have people thinking they have been fiddled,” he added.
Earlier this month, the Office for National Statistics announced its intention to bring in a new measure of inflation – CPIH – from next year.
Consultants have urged trustees and pension managers to monitor how this will affect their schemes and communicate any changes clearly to members.