UK - Increasing numbers of defined benefit (DB) schemes could do away with inflation-proofing of pensions, Towers Watson has said, as the UK parliament considers proposals that will allow for easier transfer of pension savings.
A draft of the Finance Bill, currently at committee stage in the House of Commons, would allow for retired workers to draw down additional defined contribution pension assets if their total retirement income was in excess of £20,000 per annum.
A number of sources can count toward this Minimum Retirement Income (MIR), including DB savings, as well as annuities and state pension payments, with the consultancy arguing that these asset transfers would result in reduced liabilities for pension funds.
Paul Kitson, senior consultant at Towers Watson explained that doing away with the non-mandatory inflation increases and instead offering a higher, static base pension would also help schemes, while allowing savers to access additional savings.
"Not all of the inflation increases promised by DB schemes were compulsory, and removing them reduces the amount employers must continue to pay if the member lives longer than expected," he said.
He added that while the proposals were developed with defined contribution (DC) savers in mind, members of DB schemes were more likely to have sufficient funds accumulated to meet the MIR threshold.
Kitson said final salary members would seek to enjoy the same flexibility as DC members and ask for their schemes to assist them.
"They will be knocking at an open door because transfers reduce pension liabilities and the risks to which employers are exposed," he added.
In a straw poll held at a recent Towers Watson seminar attended by scheme trustees, 34% said they would allow members to transfer any part of their DB scheme not required under MIR to a DC scheme, while more than half said they were considering offering members such an option.
However, 9% said such reforms were currently not being considered.