UK - Legislation for the switch from the retail price index (RPI) to the consumer price index (CPI) is likely to be more restrictive than initially anticipated, pension law firm Sackers has said.
The UK government's new Pensions Bill 2010-11 will amend current law in a number of areas, allowing for the abolition of the default retirement age (DRA), as well as implementing several changes to current auto-enrolment legislation.
Zoe Lynch, partner at Sackers & Partners, said the bill now specifies under which circumstances schemes are not obligated to increase pensions by CPI.
"We now know the mechanism for making the switch from RPI to CPI means a scheme, if it decides to opt out from the statutory method of making increases, can choose to offer increases on either CPI or RPI," she said, adding that any increases would be dictated by the revaluation order issued by the secretary of state for work and pensions, currently Iain Duncan Smith.
She added: "Crucially, it can only offer RPI-based increases, provided that the rules require and have always required increases based on RPI since the 'beginning of 2011' for pensions in payment before 2011."
Lynch went on to criticise the imprecise language in the bill, saying it was unclear when exactly the beginning of 2011 would be marked.
"Thankfully, if the pension isn't yet in payment, the limitation is clearer - pensions that have not yet come into payment must have this limitation applied from the date they come into payment," she said.
Other changes made as part of the bill include the previously announced change in state pension age, bringing women into line with men by 2018, followed by a one-year increase to 66 by 2020.
Joanne Segars, chief executive of the National Association of Pension Funds, said the increase was a sensible move, but urged that it should be accompanied by an increase in state pension payments, as the UK's was currently the worst in Europe.
She added: "The 2012 reforms introducing auto-enrolment are a landmark for getting more people saving into a pension. The changes brought forward in this bill will decrease the burden for business while encouraging more people to save."
The government also confirmed that the enrolment threshold would be increased to £7,500, as first announced last year. and that workers would be able to defer enrolment for the first three months of employment.
However, Peter Woods, pensions partner at PwC, criticised the increased enrolment threshold, saying by the time smaller employers have to comply with the legislation, the threshold will have already risen to £10,000.
He added that the fear of levelling down was not justified in regards to blue-chip employers in the country.
"Many have concluded that the costs of potential adverse employee relations would outweigh any pension cost savings," he said.
"Those employers that are looking at 'levelling' contributions argue that it's a necessary price for existing pension scheme members to pay to ensure more of their colleagues gain a workplace pension."