The government has launched a consultation on linking private sector pension schemes to the consumer prices index (CPI).
Pensions minister Steve Webb announced to the House of Commons that the government will not force private sector pension schemes to use CPI if they specify the retail prices index (RPI) as the measure of inflation in their rules.
In July, the government announced the inflation indexation of private sector pensions would follow state and public sector pensions, which move to CPI from April 2011.
Zoe Lynch, partner at law firm Sackers and Partners, said: “Although the government has announced it has left pension uprating unchanged for those occupational pension schemes which specify RPI in their rules, in doing so the buck has passed to trustees to decide whether to make the switch to CPI.
“Now trustees will have to decide whether to amend scheme rules, if they have the power to do so. This could put trustees under pressure from both employers and members.”
Raj Mody, pensions partner and chief actuary at PricewaterhouseCoopers, commented: “The government has proposed to hold back from taking any action which would override private sector scheme-specific situations.†
“This puts the burden for interpretation and action back onto schemes and their sponsors, and will severely limit the action many companies can take.
“Sponsors with pension schemes which have rules which specify the use of RPI or involve other constraints, such as requiring agreement from trustees to make changes, may find they cannot make full use of the CPI switch. Therefore, the government's estimated saving for private sector pension liabilities of over £75 billion may not be fully achieved in practice.”
The consultation will be open until 2 March 2011.
Read more articles on linking pensions to CPI and RPI
