Daily Management Review

The Government In The U.K. Proposes New Pension Scheme That Could Affect Pensioners


04/30/2017


There would be leeway to “change indexation” for the stressed out companies.



The government of the U.K. has introduced new pension scheme, under which the pensioners may get reduced benefits.
 
Companies under “stress” will get to “index annual increases” as per the “consumer prices measure” in place of “retail prices” as the latter is “usually higher”, reports the “department for Work and Pensions”. In this manner companies will be helped in covering up a “pension deficit” while damaging the “pensioners benefits over the longer term”.
 
BHS’ collapse has brought the pension issue to light, as “20,000 people” were left to face “lower payouts” last year as the scheme followed by the company showed a deficiency of “£571m”. Digitallook reported that:
“Former owner Philip Green, who sold the chain to serial bankrupt Dominic Chappell for £1, is at loggerheads with the Pensions Regulator about how to make good the shortfall”.
 
While, the government informed that in general there was no persuasion of the fact that “there is a general ‘affordability’ problem for the majority of employers running a defined benefit scheme”.
 
According to the document:
“Consequently, we do not agree that across-the-board action is needed to transfer more risk to members, or indeed to reduce members’ benefits in order to relieve financial pressure on employers”.
“However, we do recognise that there are some companies who are paying very substantial deficit repair contributions which may not be sustainable in the long term. We have therefore considered what might be done for these ‘stressed’ schemes and their sponsoring employers, and the difficulties in doing so.”
“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.”
 
While the document also added that:
“Moving to statutory indexation only would increase this loss to members substantially”.
“Currently, index-linked gilts (ILGs) are linked to RPI, as this was the standard measure of inflation when ILGs were introduced. As pension funds hold nearly 23%78 of their assets in ILGs, any changes to scheme indexation could have significant consequential effects on the price of these gilts, which would affect the Government’s ability to issue debt in a cost-effective way.”
 
 
References:
www.digitallook.com







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