In and amongst all the World Cup and psychic octopus hype this week, the government tried to make what the Sunday Times has called a “stealth” change to final-salary pension schemes. However, unfortunately for Steve Webb – pensions minister and mastermind behind the scheme – the announcement seems to have been about as stealthy and under the radar as Anna Chapman’s alleged espionage tactics of late.
The weekend’s money sections were full to the brim with commentary on the potential changes to the 12 million members’ schemes, where income is based on earnings before retirement and once you retire, that income is increased in line with inflation each year.
The debate has centered on the change to which method of inflation is used and how this will affect income levels for pensioners. Final-salary schemes now use the retail price index (RPI) as their measure of inflation, currently 5.1%, but from January, they will be to use the lower consumer price index (CPI), which is 3.4% at present. This means pension payments are likely to rise at a slower rate according to the Sunday Times.
Whilst many advisers criticised the move, warning that many employees face having to save thousands of pounds more each year to remain on course for the benefits they were expecting, Joanne Segars, chief executive of the National Association of Pension Funds, said that it should give pensions more breathing space and make it a little easier for firms to keep their schemes open. Actuary Hymans Robertson is quoted in the Mail on Sunday saying that the changes will reduce outstanding pension liabilities for Britain’s 350 largest companies alone by £50bn.
Advisers warned in the FT this weekend that this change could reduce a pension by up to 15%, and scheme members might need to consider making additional savings in tax-efficient accounts that can be dipped into if their income starts the substantially lose its buying power. In his comment piece for this week’s Sunday Telegraph, Paul Farrow did provide a bit of light at the end of the tunnel, he mentioned that because the CPI is not guaranteed to be lower than RPI, the move could end up being just a minor tweak in the grand scheme of things.
The tally from the rest of this weekend’s papers was: