RPI needn't be a rule
Editorial: The closure of the defined benefit green paper consultation falls on a Sunday, but it is yet to be revealed if the outcome will be a wedding or a funeral.
The defined benefit framework is being shaken – some say that is because its foundations are weak, others say company bosses are trying to tear it down. The feature on the green paper takes a closer look at what the problems are.
Opinions diverge on many of the issues brought up in the government’s consultation on DB, but some ideas have been backed, such as a statutory override to allow schemes with the retail price index written into their rules to switch to another – lower – inflation measure, under certain circumstances.
The Pensions and Lifetime Savings Association has said it is supportive of the end to what it termed a “drafting lottery”, as its investment and governance head Joe Dabrowski put it in his comment. This is despite some of its members fearing they will be pressurised by employers to make the switch away from RPI.
A survey of delegates at a Baker McKenzie event also found a majority (87 per cent) were in favour of the government considering an override.
The argument for a change is strong when considering that RPI has attracted much criticism for how it is calculated.
Other proposals found less support however; giving the Pensions Regulator greater powers is one of them. The Association of Consulting Actuaries, for example, has said it opposes such a move, arguing that recent high-profile cases were failures of corporate governance rather than pensions regulation.
The measure is however favoured by Prime Minister Theresa May, who has pledged that the regulator will be more involved in M&A. Even if a majority in the industry were against it, a Conservative government would still have to fulfil that promise.
Compromising accrued benefits is arguably the most contentious measure being considered today (read more here). There are advocates for it, but the option might be too unattractive for any politician to implement it. It is therefore unlikely we will see government follow through with such a proposal.
Sandra Wolf is editor at Pensions Expert. You can follow her on Twitter @SandraCWK and the team @pensions_expert.