NEW rules that would have significantly reduced the pensions of millions of private sector workers were abolished yesterday after the government backed away from plans to reduce the inflation-proofing of retirement benefits.
In an abrupt U-turn to plans announced just six months ago that private sector pensions could be tied to the consumer price index, instead of the retail price index, mimicking a change to state pensions, the government yesterday said that it would not go ahead. “Only those schemes that do not have such clear wording but instead refer to measures such as ‘the general rise in prices’ will find that there may be flexibility,” pensions minister Steve Webb said.
Laith Khalaf of Hargreaves Lansdown, said ministers had backed down because of the risk of legal action.
“Permitting schemes to renege on their explicit promises would amount to a retrospective reduction in the pensions that had been promised. Such a move by the government would almost certainly have been contested in court.”
In its consultation paper, the Department for Work and Pensions noted that up to 80 per cent of private occupational schemes had legally binding rules that tied pension increases specifically to the RPI.