As many as 4 million people could be affected by government plans to allow private sector final salary schemes to increase pension payments in line with consumer prices index (CPI), rather than the more generous retail prices index (RPI).
Pensions minister Steve Webb said the government were not going to permit existing pension policies a modification power to make it easier to use CPI for schemes that do not have the power to amend rules. He proposed though making the CPI the minimum requirement for new private schemes.
Around two thirds of pension schemes are legally bound to remain linked to the RPI with a third, around 4 million schemes, not having RPI “hard wired” in to their rules.
For those who will see their policy switch to CPI, it is estimated to reduce the value of their pension payments by around 15 percent.
Webb said: “We do not believe that government should intervene to give pension schemes powers to change their rules if they do not already have such powers and our consultation out today will seek views on this approach. We need to ensure that people can have confidence in their powers.”