Written Evidence to be reported to the House.
Pensions Bill
1:15 pm
Keith Barton: For the avoidance of doubt, what we mean by conditional indexation is that members’ benefits would increase depending on financial health. We have thought through this very hard and there are important safeguards to avoid abuses. In the normal course of events, members would receive their benefits in full—they would be indexed each year in payment and in the period prior to payment. But if things went wrong and if there were investment problems, there would be the opportunity to hold off those increases for a period until the funding and investment conditions improved and the fund was again able to afford full indexation.
It is an important safety valve. One of the reasons why pension schemes are closing at the moment and have been closing in droves over the past 10 years or so is that there is no safety valve. An employer who commits to a current scheme of a DB nature has to guarantee every single benefit. There is very little opportunity to be flexible if things do not turn out quite as the employer planned. Our schemes would give that flexibility and, we believe, would encourage a reversal in the trend from final salary plans straight to defined contribution schemes where members are at great risk of making poor investment decisions and ending up with poor benefits.