01 Mar 2008, Paul Greenwood, Marcus Mollan, Guy Whitby-Smith and Udit Kapoor, Risk magazine
Government's deregulatory review
Recent legislation has allowed changes to be made to the minimum level of inflation protection required of defined benefitpension schemes. The Pensions Act 2004 reduced the minimum permitted Retail Prices Index (RPI) indexation cap for pensions in payment from 5% to 2.5% (applied year-on-year). In addition, following the Department for Work and Pensions' consultation exercise in 2007, the government decided to reduce the RPI cap for the revaluation of deferred pensions from 5% to 2.5% (applied over the whole period rather than year-on-year) and to introduce statutory overrides to allow amendments to be made more easily to scheme rules so that these changes can be implemented. In all cases, the change only affects future benefit accrual, not past service benefits, and it seems highly unlikely that the government would risk any attempt to adjust past service benefits.