Pensions minister Richard Harrington has accepted there will be "winners and losers" as a result of a government review into defined benefit pensions schemes, but has stressed the outcome will be "fair".
Speaking to FTAdviser following the release of the long-awaited green paper on defined benefit pension schemes on Monday (20 February), Mr Harrington said that as yet no decisions had been made on how such plans would be shaken up and "everything is up for grabs".
When asked about one of the paper's key proposals - allowing "stressed" pension schemes to shift indexation from the retail prices index (RPI) to the consumer price index (CPI), or even scrap it altogether - the minister said: "I think one has to remember the intention rather than the actuality," he said, referring to the choice many schemes had made years ago to link to the retail price index rather than the consumer price index.
“There’s always winners and losers in everything, and it’s our job to make sure that the system is fair, and we’re not jumping to a conclusion,” he said.
Another key proposal was the creation of a DB "superfund" to allow small schemes to gain scale.
Previous proposals had suggested the Pension Protection Fund should manage such a scheme, but Mr Harrington told FTAdviser he did not favour that model.
"I’m not ruling anything out, but I think that the British fund management industry is so huge and so significant that it is quite possible for them to do it separately. I don’t see any reason why we should go to the PPF, good job though they are doing," he said.
When asked why the green paper did not look at DB transfers as a way of alleviating pressures on the DB sector, Mr Harrington said it was not considered a "core subject".
However, he said the subject might still be addressed in submissions.
Royal London's Steve Webb, who was pensions minister from 2010 to 2015, said there was a lack of "firm proposals" in the paper, adding there was "a real chance they may end up doing almost nothing".
He said he was particularly disappointed the paper did not contain some proposals on partial defined benefit transfers.
He also said the paper was "too timid" in its suggestions for increasing The Pensions Regulator's powers.
Work and Pensions select committee chairman Frank Field broadly welcomed the green paper.
On the issue of the DB "superfund", though, he urged the government to "revisit the question of whether it could helpfully fill that gap" if the market failed to come up with a solution.
Raj Mody, PwC's global head of pensions, said the green paper would give "some hope" to struggling employers.
He said whether a scheme used RPI or CPI was "a lottery of how they were set up and layer upon layer of subsequent legislation".
"Allowing these to be eased in cases of distress is sensible," he said.
Bob Scott, chairman of the Association of Consulting Actuaries, also welcomed the proposals on changes to indexation.
“The ACA believes that there is a case to rationalise indexation arrangements to remove the 'lottery' that has applied since the government changed its statutory measure of inflation from RPI to CPI in 2010," he said.
He said the ACA also supported conditional indexation "with appropriate safeguards".
But Old Mutual Wealth's tax and financial planning expert Rachael Griffin warned any changes to indexation would be contentious.
"The government undoubtedly faces a consumer and trade union backlash against these proposals, despite the fact they appear to be a long way away from making a conclusion," she said.
Overall, the industry was in broad agreement with the government's assessment that the strength of the DB system ultimately depended upon the strength of its sponsoring employers.
james.fernyhough@ft.com
