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New UK
Pension Rules could cause Company Schemes to Collapse
(30/07/2006)
The current rules that force
pension schemes to increase retirement income in line with
inflation are so expensive they could lead to schemes closing
down altogether. That is the warning that has been given by the
boss of the organisation representing almost all the pension
funds in the UK.
Christine Farnish said the NAPF
supported government plans to review the rules surrounding
company pensions, which she said were the toughest in the world.
However, the TUC told BBC Radio 4's Money Box programme it was
unacceptable for employers to renege on promises they had made
and which their staff were relying on. Pensions policy officer
Michelle Lewis warned that any more damage to the reputation of
pension funds could add to the huge mistrust already surrounding
them which would take years to rebuild.
However, Christine Farnish told
the programme that raising pensions each year in line with
inflation was very expensive. "We are the only country in the
world that forces companies who offer salary-related pensions to
index them in payment. It has added about 30% to the cost of
doing it," she said.
And she said if there was no
change, pension schemes could shut down: "I'd like there to be a
regime in future where there was more discretion so that schemes
can stay open rather than close.
"We're not talking about
savagely taking away promises from people just getting back to a
regime that's going to be able to continue."
'Pension promise'
But the TUC's Michelle Lewis
warned against taking away benefits that were already part of
the scheme: "People have been made a pension promise by their
employer.
"They have contributed to
pensions schemes over their working lives and they deserve to
get what [they see as] deferred pay when they come to retire."
But she stressed the TUC was
not arguing against any change at all.
"We are not saying schemes
shouldn't sit down with their trade unions and scheme members
and talk about the future of the scheme, but not making changes
that have already been built up and certainly not trying to stop
inflation-proofing pensions in payment," she said.
But that could be precisely
what the government has in mind. Its pensions White Paper,
published in May, said it would launch a "review of pensions
regulation" which could "remove... legal requirements" and could
"include re-examining... mandatory indexation of pensions in
payment".
And speaking to the National
Association of Pension Funds on 8 June, Pensions Secretary John
Hutton said the items mentioned for review in the White Paper
were "a minimum of what we are prepared to consider... Nothing
is off the table."
The full interview can be
listened to at:
http://news.bbc.co.uk/media/audio/41778000/rm/_41778898_pensions.ram.
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