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September 13, 2004 10:04 pm
Employers will have the power to change workers' pension entitlements without their permission, including the elimination of widows' benefits, under a clause of the new pensions bill, the actuaries' professional institution has warned.
It has also challenged the government's claim that no one would lose out as a result of the clause.
Section 67 of the bill, to be debated on Tuesday in the House of Lords, allows scheme trustees to withdraw benefits members have already earned, provided these are replaced with different benefits that are worth as much in economic terms.
The Institute and Faculty of Actuaries, the professional body which advises occupational pension schemes, on Monday took the unusual step of writing to the Department for Work and Pensions to express its alarm over the wording of section 67. In particular, it could allow employers to slash widows' pensions so long as it improved pensions in payment to retired workers, under a concept known as "actuarial equivalence".
Wendy Beaver, chairman of the institute's pensions board, said that government ministers might have mislead the public by saying that section 67 would create "no losers". "The concept of actuarial equivalence does not sit easily with the concept of no losers," she said.
Ms Beaver noted that the government had rejected a proposal in an earlier report that the cost burden on employers be relieved by scrapping the requirement that occupational schemes be required to provide widows' pensions. "We are quite surprised now to see another strand of that being allowed," she said.
Ms Beaver said release of the actuaries' letter to the DWP was an unprecedented step for the profession. It follows the report by Lord Penrose into the Equitable Life debacle, which criticised actuaries for not speaking up when the public interest was at stake. "Lord Penrose said the profession should speak out more when there are matters that might not be easily understood by the general public," she said.
Specifically, the institute is concerned that Malcolm Wicks pensions minister, has said that under section 67 "there will be no losers". "We fundamentally disagree with that statement," she said, citing the example of a scheme which reduced annual increases to pensions in payment for some workers but offset that with improved benefits for surviving spouses. "An unmarried member would clearly have lost out," she said.
The institute says it agrees that section 67 should be adjusted to allow small changes to benefit design of, say, no more than 10 per cent.
Currently, rules forbid trustees from approving even modest changes in rules, most of which are simply "tidying up" exercises, if even a single member is harmed.
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