11 June 2004 - Wicks - Removing indexation from DC pensions helps scheme members and schemes
The Government announced yesterday that indexation would be removed from defined contribution schemes by government amendment to the Pensions Bill. The change would represent a significant simplification for schemes by removing complications caused by several different indexation regimes.
Yesterday’s announcement by Baroness Hollis in the Lords 2nd reading of the Pensions Bill, followed a statement from Malcolm Wicks, Pensions Minister, in March of this year, that he was considering the issue.
Malcolm Wicks, Minister of State for Pensions today said:
“ Removing indexation from defined contribution schemes will help scheme members by giving them greater choice in the type of annuity that they will be able to purchase with their pension rights. The annuity choices that people make affect their income in retirement and therefore their quality of life. It will therefore be crucial that those providing pensions ensure that people have the information they need to make a well informed choice.
“This change also represents an important simplification for DC scheme and personal pension administration.
“We know that the removal of Indexation on DC schemes will be welcomed by many scheme members and many within the pensions industry.”
Notes for editors
The changes would remove all indexation from defined contribution (DC) pensions coming into payment after the legislation comes into force. The present arrangements are:
- DC occupational pension schemes – indexation applies to contracted-out rights accrued 1988-1997 and to all rights accrued since 1997. Personal pensions – indexation applies to protected rights accrued since 1988.
- Because of the way the current indexation legislation operates we propose to make the necessary changes to post 1997 arrangements through primary legislation and pre 1997 arrangements through secondary legislation.
- For further information please contact Vicki Kennedy on 020 7238 0640
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