The battle for members’ pensions

The argument is that we exist in a period of crisis within the defined benefit universe, which is a significant drag on UK plc.

Many schemes have the retail price index hardcoded into their rules, although RPI is now a junk statistic that, one gets the sense, is being produced under duress by the Office for National Statistics.

One suggestion is to help with this issue by allowing schemes with hardcoded RPI benefits in their rules to override this with the consumer price index. Should schemes be able to do this on a 'business as usual' basis?

Courts and government have so far protected past promises

Schemes may, of course, be able to do something under existing regulations akin to a mini pensions increase exchange exercise.

However, RPI is still being published and schemes must continue to value benefits in accordance with it.

Any right to unilaterally drop RPI would fly in the face of EU-given rights to enjoy property (as pensions are classed) without molestation. 

This view has been supported by numerous court cases that have protected the rights of past earned benefits. It also seems unfair for members to take the hit where other creditors or shareholders enjoy the company’s profits unaffected.

Protection of past benefits should not be surrendered willy-nilly – where would it end?

It is also significant that even in the British Steel case the government decided not to provide a one-off rule to allow the scheme to switch to CPI through risk of contagion to other schemes.

Risks outweigh benefits

Member benefits as previously promised should not be compromised unless employers are on the cusp of collapse, and where the risks and impact on members are weighed up on a case by case basis.

Consideration has to be given to whether the employer can be saved in some way with continued support for the scheme, or have the scheme enter the Pension Protection Fund.

No one wants pension schemes driving employers into the ground, but examples of this are few and far between.

The issue of benefit protection now sits firmly with the government. However, politically it will be risky, as giving the whip hand to employers in this way will upset many members – and therefore voters.

Also, creating regulations to allow employers to renege on past promises will be difficult to draft without leaving the door open for other employers to exploit reducing benefits or making them so narrow as to be useless.

There are powerful voices calling for past promises to be set aside, but I still believe that in all but exceptional circumstances we should argue for the protection of benefits promised to millions.

David Brooks is technical director at consultancy Broadstone