Pensions  

Field’s final salary bill branded ‘political suicide’

Field’s final salary bill branded ‘political suicide’

Controversial plans from the Work and Pensions Select Committee could solve the problem of underfunded final salary pension schemes but have been labelled “political suicide” by industry experts.

Last week FTAdviser revealed that Frank Field, Work and Pensions Select Committee chairman, planned to call for legislation that would include deep cuts to members’ promised retirement benefits, as well as other plans to tackle the pensions deficit crisis by reducing schemes’ liabilities

He said that members of final salary company pensions must face the fact their schemes may never meet their liabilities, and adjust them to more realistic levels.

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The proposals would form part of what the Labour MP for Birkenhead referred to as a “mega bill” to deal with the unsustainable liabilities faced by some defined benefit (DB) pension schemes.

Mr Field is also planning a separate bill which would prevent companies paying out generous dividends at the expense of their employees’ pension schemes.

Darren Cooke, director of Derbyshire-based Red Circle Financial Planning, offers DB scheme transfer advice.

He predicted Mr Field’s legislation would lead to mass strikes to rival those carried out during the civil unrest in 1978 to 1979, known as the ‘Winter of Discontent’.

He added that if the government forced private DB schemes to cut their benefits, it would have to do the same to public schemes. “Every nurse, teacher, fireman, doctor would be on strike,” he said.

Such legislation could also cause a spate of transfers out of defined benefit schemes – akin to a run on the banks – and more mis-selling scandals, he warned, adding: “As soon as a lot of people start transferring out of DB schemes, then the sharks will begin to circle.”

Mr Cooke concluded that Mr Field’s “great policy in theory” could “never happen” because it would be “political suicide.”

But two professional pension trustees – one of whom preferred not to be named – said Mr Field’s proposals were workable and potentially good policy.

They blamed the current crisis facing DB schemes to a large extent on government requirements, such as linking payments to the retail price index.

Clive Gilchrist, deputy chair of professional trustee firm Bestrustees, said: “Governments over the years have imposed a number of constraints on defined benefit schemes, such as retail price index linking”

“They were imposed by legislation, so they would have to be undone by legislation.”

james.fernyhough@ft.com