The regulations surrounding defined benefit schemes are “inconsistent” with the “freedom enjoyed by the state” when it comes to setting pension ages, Gowling WLG director Chris Stiles has said.

His comments follow a report published by Sir John Cridland yesterday on the state pension age, which proposed bringing the increase to 68 forward by seven years to 2039. The Government Actuary’s Department has also suggested increasing the state pension age to 70 for those currently in their 20s.

Stiles noted that many employers may regret that they are committed to a higher standard of member protection than the state, given the effect increased longevity is having on the cost of DB schemes.

“If benefits in an occupational scheme accrued on the basis that they come into payment at age 65, delaying the age at which they come into payment would be unlawful, because it adversely affects a right that has already accrued,” he said.

“Employers may look with some envy at the fact that the government can react to increasing longevity simply by delaying the age at which it puts pensions into payment. That is a consequence of the fact that the state system, like public sector schemes, is a creature of statute, and the statute can be changed to adapt to new circumstances.”

Stiles noted that it may seem unfair, as at the time the promise of a pension at (typically) 65 was made, nobody foresaw that life expectancy beyond that age would increase so significantly.

“What has been promised is a far more valuable benefit than was actually intended. That is compounded by the requirement to pay inflation-related increases on the pensions during the entire time it is in payment.”

However, despite this inconsistency, he warns that there would be consequences of amending the regulations surrounding DB schemes in terms of pension age: “Allowing employers to resile from promises freely entered into would be a controversial move, though, and would set a dangerous precedent. Normally under English law, the fact that you have, with hindsight, made a bad bargain does not give you the right not to be bound by it”.

“Against that, many would observe that it used to be much easier for employers to walk away from their pension schemes than it is now, and it is, in part, the effect of increasing regulation that has made these promises so much more burdensome, not just a lack of foresight on the part of employers.”

Stiles stated that the green paper looking into DB schemes should look at the age at which pensions are payable and how they are uprated to ease the burden on severely underfunded schemes.

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