MP Frank Field has launched an inquiry into defined benefit (DB) pensions to find “radical solutions” to the increasing pressures on retirement savings posed by rising life expectancy and stubbornly low investment returns.
In a statement released late last week, the chairman of the Work and Pensions Select Committee said unsustainable promises made to scheme members were being “stacked up against” the jobs of younger generations.
Without urgent action, “the impact on millions of people’s living standards from intergenerational trade-offs of income and wealth are brutal,” he said.
Mr Field did not specify the nature of these “radical solutions”. But in a previous interview with Financial Adviser, the MP for Birkenhead explicitly stated they could include reductions in member benefits.
His comments came a day after the government revealed it was considering changing the law to allow the British Steel Pension Scheme to peg its annual benefit increases to the consumer price index (CPI) rather than the normally higher retail price index (RPI). The proposal was part of an effort to find a buyer for the scheme’s sponsor, Tata Steel UK.
“We should be under no illusions that British Steel is a special case,” Mr Field said. “Eleven million people have private defined benefit pensions. More than 5,000 of the associated schemes are in deficit to the tune of £805bn, while the combined surpluses of other schemes is £4bn.”
Bill Marshall, a financial adviser with Lamb and Associates Lifestyle Financial Planning, said it may be inevitable the liabilities of final salary schemes would have to be reduced.
“The argument is if you reduce the liability, it means it’s less likely the schemes will fall into the Pension Protection Fund,” he said, adding if more and more funds fall into the PPF, then it may have to be bailed out by the government; a burden born by the taxpayer.
