Proposed £90bn indexation cut in UK defined benefit (DB) schemes ruled out by Government

20 March 2018

 

19 March 2018 - The UK Government has ruled out a proposed £90 billion cut in defined benefit (DB) scheme benefits through indexation changes. 

In last year's green paper on DB schemes, the DWP proposed 'across the board' cuts to indexation for DB schemes, allowing them to move from the Retail Price Index (RPI) to the lower measure of Consumer Price Index (CPI) 'on the grounds of rationality and fairness'. The UK Govt, in their White Paper published on 19 March 2018, rejected this proposal, stating 'Any across-the-board change would allow sponsoring employers to reduce their liabilities at members' expense even if the employer had no difficulties in meeting their existing liabilities.' click here to view article by Citywire, New Model Adviser.

As UK DB scheme deficits have grown significantly over the past several years, it is likely we will see further initiatives trying to reduce the overall value of these schemes. As reported by us in January 2018, one large corporate DB scheme announced that all CETVs (Cash Equivalent Transfer Values) from Feburary 2018 would reduce by 20% across the board.The DWP proposal came on the back of growing DB schemes deficits across the UK pension industry, fueling concerns that not all member liabilities could be met by many of the largest FTSE 100 companies. The funding liabilities for FTSE 100 defined benefit (DB) pension schemes in the UK have risen to £705 billion at the end of December 2017 from £460 billion at the end of September 2017, according to research by JLT Employee Benefits. 

It also reported that 41 FTSE 100 organisations could settle their pension deficits in full with a payment of up to one year’s dividend, seven would need a payment of up to two years’ dividends to settle their pension deficits in full, and 15  would need a payment of more than two years’ dividends in order to settle their pension deficits in full.

If you have a UK DB/Final Salary Scheme and are aged between 45-60yrs, we recommend a discussion with our client services manager regarding your possible options.

Call Sterling Planners on 1300 132 737.

For Specialist QROPS advice on your UK pension situation - click here for details on how to engage our services.