DWP’s Orwellian pensions move is rather sinister

Tony Hazell

Tony Hazell

There is something sinister about governments attempting to rewrite history. But that is exactly what the Coalition is doing right now with promises made long ago to those who contracted out of Serps.

In 1978, when final salary pensions were more common, most employers opted scheme members out of Serps. Instead, they had to promise to give a guaranteed minimum pension (GMP) that was at least as good as Serps. Both employer and employee paid a lower rate of National Insurance.

When the employee retired, the employer paid the GMP, but the inflation increases on GMP were covered by the government and added to the state pension.

On pensions accrued from 1988, employers had to pay the first 3 per cent of inflationary increases, but the government covered anything above this.

These rules covered Serps payments until 1998.

The promises were spelled out by successive governments and repeated in parliamentary statements held within the parliamentary library.

Yet, anyone who retires after 5 April 2016 who was contracted out during these years will not benefit from the government-backed increases.

Some pensioners will be thousands of pounds worse off as a result.

You may wonder why these changes have had so little publicity or why the Coalition has failed to make them clear to those affected.

It is because it is pretending they are not happening. The department for work and pensions claims that the state was never responsible for these increases.

What is more, in an Orwellian development, a DWP spokesman told me it is removing references from the parliamentary library.

“We are working with the parliamentary library to remove references to DWP indexing GMPs,” he said. “This stems from an oversimplification on additional state pension indexation.”

If such an “oversimplification” had been made by a financial company, they would be fined and ordered to pay restitution to investors. The government, however, appears likely to get away with this.

Governments have a track record for misleading on Serps.

In 1986, the law was changed to reduce widows’ benefits. But government leaflets did not include this information until 1996. Even after this, people who called phone lines were being misinformed.

Information on inflationary increases to the GMP can be found in documents such as SN4956, published on 10 February 2012, and in A Guide to the State Pension, published by the Pensions Service in April 2004. Get your copies before they are erased from history.

Time to step up to the plate

Financial advisers who may have hoped to carry on earning commission as company pension advisers until 2016 will have received a nasty shock when Aviva announced it is pulling the plug at the end of this year. Where Aviva goes, others will follow.

Advisers will have to start discussing fees with employers. In turn, employers will want to know precisely what they are getting for their money. Some will not like it, but it will lead to healthier relationships, where those who receive the service will pay for it directly.