Caution is urged over changes to pensions

Pension funds are being pushed into 'uncharted waters' by economic and legal changes that are likely to have a major impact on their financial well-being, a cross-party committee of MPs warned yesterday.

Any legal changes in the wake of the Maxwell scandal should not encourage employers to speed up the abandonment of final salary schemes in favour of less predictable money purchase pensions which cannot guarantee that those benefiting will not have to fall back on to means-tested benefits.

In a memorandum to the Goode Committee, which is reviewing pension law, the Commons Social Security Committee makes clear it has strong reservations about the increasing emphasis on money purchase pensions.

'Money purchase schemes are what their name suggests,' the committee says. 'At the point of retirement members will have a capital sum from which they will buy annuities.'

The timing of such purchases, however, can make a dramatic difference - someone retiring immediately after the 'Black Monday' stock market crash in 1987 would have ended up with a pension 30 per cent less than someone retiring a week earlier.

The memorandum, drafted by Frank Field, the Birkenhead MP who is the committee's chairman, says that a final salary scheme frees recipients from having to claim means-tested support. 'Money purchase schemes offer no such certainty.'

Among employers there is a trend towards money purchase. 'That trend could become more pronounced if changes to the legal framework within which pension funds operate are imposed upon employers without consultation and agreement.'

Operation of Pension Funds; First Special Report Session 1992-93; HMSO; pounds 4.10