EMPLOYERS showed a “lack of interest” in proposals to give them greater flexibility over defined benefit (DB) schemes, says the Department for Work and Pensions (DWP).
This week, the government published its 2014 Pension Schemes Bill, which will allow employers to participate in risk-sharing collective defined contribution (CDC) plans for the first time.
However, plans to allow employers with DB schemes to amend benefits by removing statutory indexation for future accruals and reducing survivor pensions were abandoned after receiving a luke-warm response from sponsors, sister publication Professional Pensions reports.
In a response to its Reshaping workplace pensions for future generations consultation, the government said proposals for defined contribution (DC) arrangements with greater member certainty and CDC had been supported.
But it said it was dropping the so-called ‘DB-lite’ strand after research found that the changes would have to be applied to accrued benefits to make a significant impact.
It added that some of the ideas to reduce cost and volatility in DB schemes could already be achieved without new legislation.
The response states: “Given that the overall response to these ideas was cautious and led to misunderstanding about the impact on current savers and pensioners, we have decided not to pursue these proposals.”
Pensions minister Steve Webb said the reforms in the 2014 Pension Schemes Bill meet the “needs and concerns” of businesses, while protecting the interests of workers.
He said: “With the backing of consumers and industry, this bill will bring about new and realistic pension scheme options for those employers who want to do right by their staff.”
The Association of Consulting Actuaries (ACA) “warmly welcomed” the bill, saying it “provides employers with the opportunity to design more flexible pension arrangements”.
But the ACA said it was “odd” that defined benefit schemes would be “constrained in the designs that they can operate by having to provide a level of indexation in payment – indexation forced on them by Parliament after most of those schemes had been designed”.
Hargreaves Lansdown head of pensions research Tom McPhail added: “This is a moderately good idea being delivered at a particularly badly timed moment. As a consequence, even its most enthusiastic proponents do not anticipate anything more than at best a very slow and gradual take up of this new type of pension scheme.”
The government announced its intention to develop Dutch-style CDC schemes in this year’s Queens Speech. It comes just three months after Chancellor George Osborne announced sweeping reform to DC retirement income, which will allow members to access funds without having to buy an annuity. The DWP also confirmed it will cap charges in schemes used for auto-enrolment to 0.75% of an employee’s pension pot in default funds.