Written Evidence to be reported to the House.
Pensions Bill
1:15 pm
Ian Farr: Conditional indexation—what we have proposed—is not a panacea. We and all the national pensions bodies that support this believe that it could stop the dramatic shift from defined benefit to defined contribution schemes that we have seen over the past 10 to 12 years. We reckon that there are now only about 900,000 active members in private sector open defined-benefit plans, compared with 5 million in 1995. That is a drop from 5 million to 900,000 over 12 years. In the public sector, of course, the total of active members has stayed at about 5 million throughout the whole period.
There is an urgency to this. Our proposals are aimed at medium to large employers that want to, and are prepared to, share some of the investment risks of longevity with their employees. At the moment, these employers do not really have that choice because legislation bans conditional indexation, which is why you have seen so many final salary schemes replaced by defined contribution money purchase plans. We think that there is scope for a middle way—conditional indexation, which has worked so successfully in Holland.
Why conditional indexation? Because conditional indexation—not being a panacea—is a natural step. It offers a genuine middle way between defined benefit and defined contribution; it has been well tried and tested in the Netherlands; it requires only small changes to the law; and it could be implemented quickly.