Ways to save pensions put forward
A government-appointed committee asked to look at ways that pensions schemes could be saved have announced a number of proposals that would cut the cost to employers of maintaining the schemes but would also reduce benefits to members of the schemes in the future. Committee members Chris Lewin and Ed Sweeney admit that the proposals will stir controversy but they said such measures will likely be necessary to keep schemes open at a time when over two-thirds of final salary and defined benefit pensions have been closed to new members.
Among the measures proposed were rescinding inflation-proofing of pensions in payment that is now mandated by law, eliminating the requirement that benefits left behind when individuals change jobs be increased with inflation by up to 5 percent per year, and making it easier to raise the age at which individuals are eligible to draw a pension in the future or to link the eligibility age to life expectancy. Also on the table are making it easier for pensions schemes to make small value changes without the consent of members, and making it easier for employers to reclaim surpluses from their pension funds. The first two proposals would result in cuts to pension payouts, especially for those who live a substantial number of years after retirement.
Mr. Lewin, the former head of UK pensions at Unilever (LSE: ULVR; NYSE: UN; Euronext: UNA) and Mr. Sweeney, an official of the Amicus union, emphasized that the proposals they outlined are simply propositions offered for consideration and that they are not necessarily recommending any of them. They also said, however, that some action must be taken soon to reduce the risks and costs of pensions schemes to employers or else schemes will continue to close.