European Trade Union Institute, ETUI.

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United Kingdom

28 April 2017

United Kingdom: heading for pension reform?

The government of the British Prime Minister, Teresa May, has published a Green Paper on ‘Security and Sustainability in Defined Benefit Pension Schemes’, which paves the way for a reform of private-sector defined benefit pension schemes.

The government hopes soon to reform the system of pensions paid out by companies under the funds managed by employers on the basis of the 2008 Pensions Act. It is proposing measures aimed at restoring the balance of a number of ailing funds, in particular by giving some of them greater flexibility in their investment decisions. As for the funds that are struggling to survive, it is proposed that they be allowed to review the pension indexation system, suspend indexation in serious cases, reduce benefits or even transfer their members to less advantageous funds.

The government also wants employers to improve fund management, which has at times been poor. In addition, it wants to give the Pensions Regulator additional powers and, in certain cases, allow it to dissolve a pension scheme.

These measures are worrying trade unions as they will enable employers to review the indexation arrangements. In particular, switching from the Retail Price Index (RPI) to the Consumer Price Index (CPI), which is generally much lower, could affect several million people and result in every pensioner losing several hundred euro per year. Responding to the publication of the Green Paper, the General Secretary of the TUC, Frances O’Grady, said: ‘Working people need pension reforms that will improve their living standards in retirement. That means keeping good workplace schemes open and improving the quality of others. It’s encouraging that the green paper concludes that defined benefit pension schemes are affordable. We now need to make sure that reforms deliver greater security in retirement for working people, and not just higher returns for shareholders.’ The proposed measures are currently the subject of public consultation.

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