While the call for evidence avoids drawing any firm conclusions or proposing specific reforms, it discusses some potentially controversial ideas – including allowing DB schemes to reduce the value of accrued pensions by changing indexation (from RPI to CPI) or suspending indexation altogether where the scheme is distressed.
Allowing schemes to switch from RPI to CPI could slash member benefits by £90bn, according to the DWP.
Tom Selby, senior analyst at AJ Bell, comments: “The Government is performing a £90bn high-wire balancing act on defined benefit pensions. While allowing scheme sponsors to slash liabilities, possibly by switching from RPI to CPI indexation or suspending indexation altogether in certain circumstances, could preserve guaranteed pensions for more people, it would also more than likely reduce the value of these pensions and potentially whip up a storm of protest from trade unions.
“Clearly the case of BHS and Sir Philip Green looms large here, but equally ministers will be concerned about generating headlines suggesting accrued rights are under threat. Pension promises already built up have historically been sacrosanct, so even a seemingly innocuous reduction in benefits could be viewed as the thin end of the wedge and stir up controversy.
“As such the Green Paper published today avoids setting any firm direction of travel, and instead attempts to set the scene of what is likely to be a fierce debate on the future of DB pensions. Any formal proposals further down the line will need to consider not only any direct impact on DB members and schemes, but also the wider implications for trust in the UK pensions system as a whole.”