Alarm bells sound on pensions

The TUC has responded with alarm to the government’s intention to consult on the discount rate used to calculate the amount public sector employees’ pay into unfunded pension schemes.

Meanwhile, reforms that would alter BT pension scheme payments have been described as “unacceptable”.

“The discount rate is how the government measures future costs and commitments in today’s prices,” explained TUC general secretary Brendan Barber, adding that it is “used to assess much more than the future cost of public sector pensions”. He said changes could make many worthwhile projects “suddenly look too expensive”.

In another worrying development, members of the BT Pension Scheme have learned that the telecoms giant is reforming the way it calculates yearly rises in pension payments.

Pensions will now increase in line with the Consumer Prices Index (CPI) rather than the Retail Prices Index following the government’s July decision to switch to CPI for future state benefits and public sector pensions. This has a direct impact on BT’s pension scheme because of rules drawn up when it was a public entity.

The change will reduce BT’s pension fund deficit by £2.9 billion, but could potentially mean pensioners’ payouts being reduced by up to 25%. The pension schemes of other private companies that used to be publicly owned, such as British Gas, British Rail, British Aerospace and BA could also be affected.