"This is a big issue for the steel workers scheme, but an even bigger issue if the principle is applied to a wider group of salary-related pension schemes."
- Steve Webb
Royal London calculations suggest that that an 80 year-old pensioner on a pension of £100 per week could lose over £10,000 over the next decade compared with the current rules, and has raised concerns that the principle could be applied to a wider group of salary-related pension schemes.
Under the rule change, the trustees of the scheme would be allowed to reduce inflation protection from the Retail Prices Index to the generally lower Consumer Prices Index.
But another change would result in some pensioners having their pension (and any pension for their widow) completely or largely frozen, as the legal requirement to index all of a pension in payment only applies in respect of years of service since 1997.
For service before that date, there is only a very restricted legal requirement to uprate the pension and only then for a limited period.
Older pensioners who did most of their work before 1997 will see a large part of their pension frozen with only a very small annual increase, and those who did all of their service before 1997, and particularly before 1988, could have their pension frozen altogether.
This possibility is specifically mentioned in paragraph 85 of the consultation document which says that “If adopted, this [rule change] would mean that in the future existing pensioners would receive lower increases to their pensions than they would under the current scheme rules, or possibly no increases at all."
Steve Webb, Director of Policy at Royal London, said: “The rules around pension uprating are complex, and the Government’s consultation document is far from clear about how this change will disproportionately affect older and more vulnerable pensioners. This is not simply a case of switching from one inflation measure to another. Many thousands of older steel workers and their widows could see their pensions largely frozen for the rest of their life if these plans go ahead, with losses running into thousands of pounds.
"This is a big issue for the steel workers scheme, but an even bigger issue if the principle is applied to a wider group of salary-related pension schemes. This potentially huge impact, buried in the small print of the government’s consultation document, highlights the way in which rushed legislation can all too often have unintended consequences. The Government and the pension scheme need to make sure that older workers know what is happening and feed in to the consultation process.”
