Final-salary schemes face a squeeze

The government is considering indexing final-salary pension schemes to the lower-rate CPI. There's just one catch, says Natalie Stanton.

Parliament is set to consider the funding problems faced by the UK's defined-benefit (DB) pension schemes as part of a new inquiry, headed up by Frank Field, chair of the Work and Pensions Select Committee. The inquiry, which is due to begin in the autumn, will offer "radical solutions", says Field. It seems likely that this could include substantial changes to the benefits that many DB scheme members have been promised.

About 11 million people are members of 6,000 traditional DB schemes also known as final-salary schemes which pay a pension based on the member's salary at retirement and the number of years they have been in the scheme. However, the combination of rising life expectancy for scheme members and low interest rates on government bonds means that many of these schemes now have liabilities that far exceed their assets, and closing this gap has become an increasing burden on the firms that are responsible for funding them.

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Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide. 

She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.