Jonathan Watts-Lay, director at WEALTH at work, said: “The latest risk to an employee’s future retirement income plans has surfaced in the form of a debate about ‘conditional indexation’.
“With defined benefit (DB) schemes falling deeper into deficit, the search for how to save these schemes has hit upon the idea of allowing trustees to make an amendment to the index-linking promise that many employees rely on to ensure their retirement income keeps pace with inflation. Under the proposed plans, which are yet to be passed through government, employers will be allowed to stop paying pension increases for a limited time, until the scheme recovers.”
He added: “This highlights the very complex nature of retirement income provision and planning for employees. If conditional indexation is allowed then the decisions employees make at-retirement will become even more complicated as they navigate through the ever changing maze of options.”
Watts-Lay concluded: “Employees need to be given more support to understand how to access their pensions and savings, after what is literally a lifetime of saving. Breaking the ‘inflation promise’ will make the need for financial education, guidance and advice in the workplace more than a ‘nice to have’; it will be essential.”
