New Govt Proposal: Good News For UK Employers Or Not?

Image Credit: Ian MacKenzie/Flickr

Recently in the UK, the Government proposed a new form of salary-linked pension scheme that would allow employers to walk away from some promises if they end up being too expensive. Implying that workers pensions would no longer be protected against the risk of inflation.

This Proposal -“flexible defined benefits”, transfers more risk to savers by removing the requirement for schemes to upgrade pension payments in line with inflation, thereby sharing the risk between employers and employees evenly. Thus making it less costly for employers to manage such schemes.

Although this might sound like the Government is being biased toward the employers running such schemes, on the contrary, the Government has done this having workers' pensions in mind, because It made this proposal in a bid to stop companies shutting such costly schemes altogether. Closures such as these, end up making workers worse off.

Employers who end up halting such schemes argue that the schemes turn out being very expensive to run because of either high risks associated with investment returns or the rising life expectancy of scheme members.

At the moment, the Government is also being advised to consider lowering its proposed new pension charges cap from 0.75% to 0.50%, as advocates argue that worker’s retirement income would be boosted by thousands of pounds if the Government imposed a lower cap on pension scheme fees.