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Pensions Bill

The noble Lord would be the first to accept that if you go for a level annuity, as opposed to an index-linked annuity, you have your money up front from that same pot—but over the course of 10 or 12 years with 5 per cent inflation, it will probably halve in value. As I understand the consultant actuaries’ report, what is happening with conditional indexation is that companies would index only where they felt they could afford to do so, given the state of the deficit or surplus in the fund. That would mean that unless the fund were adequately funded—it may partly be a matter for the regulatory regime to ensure that that is so—the value of the pension would be eroded for many years because it was not indexed. I am perfectly willing to be persuaded that that is still preferable to a DC scheme without any indexation at all because people object to the level of annuity, but that is the risk. Although that reduces the cost for the employer, it means that the employee is effectively taking on the vast bulk of the risk of inflation over a period when they are also carrying increased longevity. That may be a risk worth taking, but that is surely where it lies.