Scrapping widows’ pensions?
Today’s Daily Mail front page screamed:
The death knell for widows’ pensions: Over 1m in private sector could lose historic right to spouse’s benefits
That was their much more exciting take on the government’s defined ambition pension paper (blogged yesterday). I expect a lot of widows would have been very frightened by that today.
Should they have been? (clue: the answer is no)The Mail story refers to the plans to deregulate defined benefit pension provision. The paper proposes lifting all requirements on schemes to provide index linked or survivor pensions. The paper’s argument for this is three fold:
- employers will keep DB schemes open if they can reduce their cost and the risk of costs rising in unplanned ways
- why should minimum benefits in DB schemes be regulated as long as they provide better than the minimum DC requirement in the new era of auto-enrolment. Regulation should be confined to making sure employers can meet promises – not set what those promises should be.
- the introduction of the flat rate pension brings the end of contracting out – this was a deal between state and employer that said in return for an employer providing a decent pension scheme they can contract their staff out of the state second pension and both employer and employee pay reduced NI contributions.
But – and this is where the Mail is misleading – these changes could not apply to pensions in payment or pensions already built up (accrued benefits in the jargon). If an employer took advantage of this change only people who join the scheme in future would build up no pension for a widow (or widower) – let’s call them survivors. Anyone with some contributions in a DB scheme already has built up some survivor’s benefits. At worst these would be frozen at current levels, and they would not build up any in the future.
The Mail does make this clear eventually:
The proposal, subject to a six-week consultation, will affect only the future rights – any pension already built up will be protected.
But there is no explanation, and many, many people will have been needlessly worried by this.
As I made clear in the earlier post, I am not a fan of the DB minus section of the paper. In particular the invitation for employers to end indexation leaving people with a constant cash pension (on future accruals) throughout retirement is dangerous.
But that is not an excuse for scaremongering.