Pensions Bill could force schemes to raise payouts

A clause introduced in the late stages of the Pensions Bill could force scheme pensions to adhere to higher payout indexation, an expert has warned.

Scheme pensions are annuities paid out directly from the scheme to the investor, rather than via an insurer.

The clause added to the Pensions Bill would class scheme pensions as defined benefit (DB) rather than defined contribution (DC) arrangements.

Robert Graves, Rowanmoor head of pensions technical services, said the change would mean scheme pensions would have to adhere to the same statutory minimum increases to pension payouts that DB schemes do.

DB schemes must increase their payouts by the highest of the limited prices index (LPI), which is 2.5%, or either the consumer or retail prices index, depending on their rules.

Graves said the application of DB rules to scheme pensions could force them to pay out pensions at higher levels retrospectively, potentially costing thousands of pounds.

However, Graves said the government has promised a consultation on the issue and expects some sort of exemption or grace period for change for scheme pensions.