Government reforms for final-salary pension schemes

by Gill Montia

Story link: Government reforms for final-salary pension schemes

The Government is drawing up plans to change the rules for final-salary pension schemes.

Under the proposals, some of the inflation-proofing of final-salary pension schemes will be removed, with employers obliged to revalue pension entitlements of former employees by up to 2.5% a year.

The current rules require employers to adjust for inflation of up to 5%.

The move, which has been welcomed by the National Association of Pension Funds, is aimed at making defined benefit schemes cheaper to run.

However the TUC believes it could lower the pension entitlement of people who take career breaks, most typically women and carers.

The new rules would apply to future entitlements only; past entitlement would continue to benefit from the more generous inflation protection.

Meanwhile, the Treasury has announced pension allowances for 2008-2009.

From April next year, the basic state pension will increase in line with inflation (as measured by the Retail Price Index) by £3.40 a week for a single person, to £90.70 a week.

The minimum income guaranteed to pensioners claiming Pension Credit will increase in line with earnings inflation, to £124.05 a week for a single person.