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Last Updated: Saturday, 17 June 2006, 13:17 GMT 14:17 UK
Pension rules could close schemes
By Paul Lewis
BBC Radio 4

Christine Farnish
The NAPF's Ms Farnish has called for more pension "flexibility"
The current rules that force pension schemes to increase retirement income in line with inflation are so expensive they could lead to schemes closing down altogether.

That warning has been given by the boss of the organisation representing almost all the pension funds in the UK.

Christine Farnish said the NAPF supported government plans to review the rules surrounding company pensions, which she said were the toughest in the world.

But the TUC told BBC Radio 4's Money Box programme it was unacceptable for employers to renege on promises they had made and which their staff were relying on.

I'd like there to be a regime in future where there was more discretion so that schemes can stay open rather than close
Christine Farnish, NAPF
Pensions policy officer Michelle Lewis warned that any more damage to the reputation of pension funds could add to the huge mistrust already surrounding them which would take years to rebuild.

However, Christine Farnish told the programme that raising pensions each year in line with inflation was very expensive.

"We are the only country in the world that forces companies who offer salary-related pensions to index them in payment. It has added about 30% to the cost of doing it," she said.

And she said if there was no change, pension schemes could shut down: "I'd like there to be a regime in future where there was more discretion so that schemes can stay open rather than close.

"We're not talking about savagely taking away promises from people just getting back to a regime that's going to be able to continue."

'Pension promise'

But the TUC's Michelle Lewis warned against taking away benefits that were already part of the scheme: "People have been made a pension promise by their employer.

"They have contributed to pensions schemes over their working lives and they deserve to get what [they see as] deferred pay when they come to retire."

But she stressed the TUC was not arguing against any change at all.

BBC Radio 4's Money Box was broadcast on Saturday, 17 June 2006, at 1204 BST.
"We are not saying schemes shouldn't sit down with their trade unions and scheme members and talk about the future of the scheme, but not making changes that have already been built up and certainly not trying to stop inflation-proofing pensions in payment," she said.

But that could be precisely what the government has in mind. Its pensions White Paper, published in May, said it would launch a "review of pensions regulation" which could "remove... legal requirements" and could "include re-examining... mandatory indexation of pensions in payment".

And speaking to the National Association of Pension Funds on 8 June, Pensions Secretary John Hutton said the items mentioned for review in the White Paper were "a minimum of what we are prepared to consider... Nothing is off the table."

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