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Axing Inflation Link from Final Salary Pensions
24/01/2012
The Government is considering whether to cut £7billion a year from the private sector pensions in order to save floundering final salary schemes from extinction, as understood by This is Money. As many more of the superior pension schemes are being closed to new members and struggle with pay outs, Steve Webb the pension’s minister is considering taking measures in order to keep them afloat.
Mr Webb is currently consulting advisers on whether we should be giving special powers to these floundering final salary schemes and abandons their expensive inflation “link.” These final salary pension schemes are guaranteed to rise by the cost of living each year, therefore upholding the value of pay-outs over time. As life expectancy has risen to 82 for the average 65 year old it therefore means the cost of the guaranteed pay-out is sky-high.
Life expectancy has risen so why not free up some money from your property to help improve your lifestyle or just to top up your retirement pension. The Right Equity Release offers completely independent advice on equity release plans; you can book a free no obligation initial appointment with one of our expert advisers. Alternatively use the Right Equity Release Calculator and see how much equity you could release in your property.
If the Government decide to rubber-stamp a relaxation of this law, two million current savers in the final salary schemes will see their future benefits hijacked overnight. If the inflation link could be scrapped then firm’s bills would be reduced by as much as £7billion, according to independent consultants Mercer. Dr Deborah Cooper, of Mercer. They also state that even pensions with capped increases cost firms a third more than those with static pay outs.
Pension payouts are annually revalued according to inflation calculated by the retail prices index or consumer prices index. Limited Price Indexation reports that the Government allows schemes to cap the annual payout increase at 2.5 per cent if inflation rockets.
The DWP have confirmed that in order to help the survival of these final salary pension schemes it is an option that a rule change needs to be considered. With the decline of these final salary pensions the DWP that we need to think about what is the best support we can offer companies to continue to offer good quality pensions.
A spokesman for the DWP has said “It is important that we have a frank and honest discussion and exchange ideas on how we can innovate the pensions for the future. We’ve committed to reinvigoration private pensions, and this is part of that debate, but no decision has been made. Our focus however, is future pension provision, not today’s pensioners.”
If you over 55 and a homeowner The Right Equity Release could open up some exciting new possibilities, release some tax free money from your property and improve your lifestyle, use the Right Equity Release Calculator and see if you qualify.
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