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11 Nov 2013

UK Government Opens Public Consultation On Defined Benefit Pension Schemes

The UK government is opening a public consultation about possibly removing protections for people who are saving for retirement in a salary-linked pension, known as defined benefit pension schemes.

Since this type of scheme is more expensive for employers to run, over the past months many have been trying to close them down. In response, the government is proposing to cut some of the protections, in hopes that this will discourage employers from shutting down such schemes.

The proposal is part of the broader Reshaping Workplace Pensions for Future Generations consultation, launched by the Department for Work and Pensions. The consultation will remain open for comments until 19 December 2013.

Under the proposed changes, employers will be allowed to automatically increase pension ages and will be entitled to remove inflation protection, the Daily Telegraph reported. However, this move would leave about two million people who are still saving in such schemes exposed to inflation. In addition, workers who decide to change their employer at some point of their career might also lose extra pension rights, the news source said.

According to pensions minister Steve Webb, defined benefit schemes have been “on the decline” for a long time, and they could disappear altogether if urgent measures are not taken. He pointed out that the government wanted to help employers offer good pension schemes to workers, including new salary-linked ones that are better suited to reflect modern realities.

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