The Department of Work and Pensions (DWP) has decided to maintain the protected status of defined benefit (DB) schemes in formerly nationalised industries.

The Government held a consultation on whether or not, following the abolition of defined benefit (DB) contracting out, employers should be allowed to override the protected persons regulations to offset the additional costs they will face associated with the end of contracting out.

As a result, employers will not be able to change the level of benefits that members of these former public schemes receive.

DWP said that it must stand by the promises it made to former state workers at the time of privatisation, and added that the issue should be resolved through negotiation between employers and employees.

However, the National Association of Pension Funds (NAPF) said that it was "disappointed" with the Government's decision and that "far more" people than DWP suggested will be affected.

Joanne Segars, NAPF chief executive, said: "The Government has effectively left it to pension schemes, trustees and unions to negotiate how this will be resolved - as employers operating DB schemes with protected persons face the dilemma of whether or not they can, or should, treat their scheme members inequitably."

She said that she hoped the dilemma would be resolved "quickly and fairly", but warned that if the negotiations are not successful, then the cost of implementing the changes will be felt by other scheme members or even the consumer.

Segars emphasised that the NAPF "strongly" welcomed the single tire state pensions system, but the Government's decision on the issue could present a "serious blow" to the viability of DB schemes.

She said: "Having now made this decision, it's imperative that the Government urgently presents a full set of draft regulations on the statutory override as the timescale for employers and schemes to make the necessary changes is extremely tight."

First published 14.02.2014

monique_simpson@wilmington.co.uk