Britain's former pension minister has called for a "statutory override" to inflationary increases that are hardwired into three-quarters of the country's defined benefit pension schemes.
Baroness Altmann said that the current system had become "unaffordable" for many businesses and the answer was to give flexibility to trustees to adjust the annual uplift paid to members – reducing the annual increase members receive.
“Defined benefit schemes are a millstone around the necks of many employers and we need to make them more affordable.
“British defined benefit pension schemes are more expensive because of the extra bells and whistles,” she said.
She cited examples of these as including mandatory spouse cover and schemes being forced to apply RPI, which currently stands at 1.9 per cent, for inflation increases rather than the lower CPI, now at 0.6 per cent.
Altmann said that three-quarters of trust deeds that govern Britain's pension schemes specifically reference RPI as a measure by which members benefits are increased each year.
“The [lower] CPI is the official index nowadays, it is just that the trust deeds specifically reference RPI. We should give everyone the option with a statutory override," she said.
The government chose to change the inflation rate used in public sector pension schemes in 2012 but fell short of giving private sector schemes the option to do the same, a decision that Altmann criticised.
“It was something that was on the cards in 2011/12 but the government ducked it," she said.
Altmann was critical of the Bank of England's decision to cut interest rates earlier this month and the impact that it had on increasing pension scheme deficits. As a well-known critic of quantitative easing (QE) Altmann called for a national inquiry by MPs on the damage created by QE in the wake the rate cut.