The UK government is performing a "£90bn high-wire balancing act" on defined benefit pensions, AJ Bell has argued.

Responding to the government's DB pensions green paper published today, it was noted that the decision to allow schemes to switch from RPI to CPI indexing could significantly cut member benefits by £90bn.

"While allowing scheme sponsors to slash liabilities, possibly by switching from RPI to CPI indexation or suspending indexation altogether in certain circumstances, could preserve guaranteed pensions for more people, it would also more than likely reduce the value of these pensions and potentially whip up a storm of protest from trade unions," AJ Bell senior analyst Tom Selby said.

Old Mutual Wealth tax and financial planning expert Rachael Griffin supported this view and stated: "The government undoubtedly face a consumer and trade union backlash against these proposals."

However, former Pensions Minister and Royal London director of policy Steve Webb described the paper as "remarkably timid" on the issue of awarding the regulator more powers, and that the "lack of firm proposals is disappointing".

“This must be one of the ‘greenest’ green papers in living memory. Despite months of public debate led by the Select Committee and the pensions industry, the government’s own thinking does not seem to have advanced significantly," Webb added.

Hargreaves Lansdown head of retirement policy Tom McPhail shared a similar opinion stating that "the overall tone [of the green paper] is cautious". Although, "it looks likely whatever else happens, we’re going to see a beefed up pensions regulator emerging the other side of this consultation,” he said.

In contrast, PwC's global head of pensions Raj Mody described the green paper's plan to suspend increases to pension payments as giving "hope to some [struggling] employers" who are unable to keep up with rising costs of DB schemes.

"For many schemes, pension increases far outstrip modern inflation measures, due in part to the lottery of how they were set up and layer upon layer of subsequent legislation. Allowing these to be eased in cases of distress is sensible."

While Webb explained that this area in the government's proposal is the most concerning. "The most worrying proposal is to allow certain schemes to 'suspend' annual pension increases if money is tight.

"With rising inflation, annual indexation is an important part of protecting the living standards of the retired population. There is a significant risk that relaxing standards on inflation protection with the best of intentions for exceptional cases could be exploited and lead to millions of retired people being at risk of cuts in their real living standards,” he continued.

Nonetheless, Mody noted that it is important to remember that the suggestions set out in the green paper are not yet final.

"It will take some time for the ideas in the green paper to be developed into detailed proposals, agreed, and then come into law. But it is encouraging that the government is willing to enter into a wide ranging debate on the issues."

“As such the green paper published today avoids setting any firm direction of travel, and instead attempts to set the scene," Selby agreed.

"Any formal proposals further down the line will need to consider not only any direct impact on DB members and schemes, but also the wider implications for trust in the UK pensions system as a whole.”

Society of Pension Professionals president Hugh Nolan concluded: "We strongly agree that policy changes should be made calmly and carefully rather than as a knee-jerk reaction to individual problem cases."

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