Over 90 per cent of firms have confirmed their support of legal reforms that would permit DB schemes to move to a CPI indexation of benefits, the Association of Consulting Actuaries has reported.

In its bi-yearly 2016 Smaller Firms Pensions Survey, the ACA found that 92 per cent of small firms, were in favour of a change in the law to move from RPI indexation to CPI indexation of pensions benefits.

However, many said they would only be happy with the change subject to the agreement of trustees or if the employer was likely to declare its insolvency.

While some schemes have already moved to CPI indexation, many firms have said that scheme rules are too complex to make such a change or the process itself is too costly to perform.

A breakdown of the results showed that 28 per cent believed that all schemes should have the option to move from RPI to CPI, 13 per cent said schemes should only move to CPI if trustees and employers agree and 22 per cent said they should only move to CPI if trustees and employers agree with members having a PPF option.

A further 29 per cent stated that they should only move to CPI if the alternative is likely to be employer insolvency. Only 8 per cent believed that employers should not change their indexation method and should stand by scheme rules.

The survey looked at firms with 250 employees or less, where more than 84 per cent of DB schemes reporting to the survey noted that they are closed to new members and 57 per cent are also closed to future accrual.

The ACA has noted that the majority of DB schemes are likely to close to future accrual soon. While firms aim to keep up with changing pensions and tax laws and attempt to keep their DB scheme affordable, many have ended up with intricate benefit structures. This has led to expensive administration which is error-prone and complex benefit measures can be unattractive to insurers when consolidating a buy-out.

As a result of this, the ACA has suggested that the government could introduce a system whereby schemes could convert historic benefit scales to a single simplified benefit structure. This could ultimately lead to cost savings and increased efficiency.

ACA chairman Bob Scott, commented: “We do not make this suggestion lightly, but it is unlikely that scheme rules were ever intended to tie trustees to an index the National Statistician has described as flawed. It is also worth noting that compulsory indexation of pensions was introduced by the Pensions Act 1995 – many schemes provided increases on a discretionary basis prior to then – and so, we suggest that it would be appropriate for the government to legislate to help address an issue that is largely due to the impact of previous legislation.”

Further reports on the survey’s results are due to be published in early November, with a final report in the New Year.

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