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Pensions should lose inflation protection

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The government has been urged to review a rule that boosts incomes from final salary pension schemes by the rate of inflation each year.

The Society of Pension Consultants (SPC) has published a recommendation that would see the end of automatic annual increases in pension incomes as fixed by the retail prices index.

At the moment, employees who are members of final salary pension schemes are entitled to a rise in income up to 2.5 per cent as based on the RPI rate of inflation.

But the SPC has argued that the rule places too great a burden on company-run pension schemes and should be dropped.

While those who have already retired would still be entitled to the rise, the SPC said that the government should consider introducing a cut-off date after which people would not have a mandatory right to the increase.

Kevin LeGrand, a council member at the SPC, said: “We are trying to help both employers and the employee. There is no ‘one design’ for pensions. We are trying to offer a new perspective. There is a danger that pensions will fall down the list of priorities because of the focus there is going to be on the economy.”

The SPC also recommended that businesses should be allowed to put together their own pension schemes.

Another proposal would free employees who retire from the obligation to buy an annuity by the time they are 75 and would give them the chance to dip into their retirement income as they save.