In a survey carried out by the NAPF published today 64 per cent of people managing DB schemes said the Government should enable all pension schemes to have the option of changing their existing rules on inflation, while 27 per cent said it should not.
But opinion is split three ways over the level of trustee backing that should be needed to make use of any new legal ’override’. While 55 per cent said the employer could make a switch with trustees’ consent, 29 per cent said employers could do so without trustees’ consent, and 16 said it should be the trustees alone who should decide.
The study also shows that 61 per cent of schemes cannot currently make a switch, mainly because they have RPI indexation hard-wired into their pension scheme rules.
The research is published on the day pensions minister Steve Webb is due to launch a consultation on proposals to allow schemes to override their existing rules on inflation.
In the Emergency Budget the Government moved the inflation indexation of state and public sector pensions from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). In July, it announced that it would allow private sector schemes to follow suit.
But many schemes found that the terms of their pension scheme specified RPI, and many in the pensions industry remain confused over which schemes can switch to CPI.
The NAPF survey reflects some of the uncertainty that recent Government reforms have created for pension funds, and the need for a simple, clear and workable solution.
Of the 162 respondents, 48 per cent said they would make use of a new legal power to switch to CPI, while 21 per cent said they would not.
Joanne Segars, NAPF chief executive, says: “The question of whether a pension can move to CPI is making it very difficult for pension funds to plan ahead.
“The Government has significantly underestimated the complexity of letting schemes switch their inflation measure. A seemingly simple change has become much trickier.
“Six out of ten pension funds are hardwired with RPI at present, and around half would switch to CPI if the law allowed.
“But that does not mean all pension funds would opt for CPI, and opinion is split on whether employers alone should be able to authorise the switch.
“Moving to CPI can give a pension fund some much-needed flexibility, but there are implications for current and future pensioners. Trustees and employers know that any switch must be handled carefully.”