The government has suggested that companies in financial trouble could be allowed to reduce the generosity of their defined benefit pension schemes. This was revealed as part of a green paper entitled Security and Sustainability in Defined Benefit Pension Schemes. This could see business that are struggling financially to cut financial salary payments to save them from going under. The green paper states:
"While we do not believe, a case has been made for across-the-board reductions in benefits paid by DB schemes, there may be a case for changing the arrangements for stressed schemes and sponsors, which will help to preserve value and jobs in the economy, while also delivering a good deal for members.&aquot;
"The Government does not think the evidence is strong enough to suggest that indexation should be abandoned or reduced across the board. There could, however, be a case to suspend indexation in cases where the employer is stressed and the scheme is underfunded. And there may be a case to rationalise indexation arrangements, as the current arrangement where some schemes are prevented from moving to CPI by scheme rules is something of a lottery."
A number of options are discussed including allowing firms to suspend annual index linked rises or pegging rises to the Consumer Price Index instead of the usually higher Retail Price Index. With as many as eleven million people being members of private sector defined benefit schemes, it could affect many people a great deal. Changing from RPI to the lower CPI could see the average pensioner lose up to £20,000 over the course of their retirement according to the green paper.
The proposals have been condemned widely. Former pensions minister Steve Webb said:
"There is a significant risk that relaxing standards on inflation protection - with the best of intentions for exceptional cases - could be exploited and lead to millions of retired people being at risk of cuts in their real living standards."
"Our modelling suggests that these deficits are likely to shrink for the majority of schemes, if employers continue to pay into schemes at current/promised level. While DB pensions are more expensive than they were when they were set up, many employers could clear their pension deficit if required."
The GMB have also condemned the proposals, with GMB national officer Keir Greenaway saying:
"Allowing schemes to break promises on pensions and raid workers' retirement savings to cover for mistakes in the boardroom will not be music to the ears of employees. However, it will no doubt go down very well with the big business bosses who bankroll the Conservatives."