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CPI pension indexing could save £100 billion

9 July 2010

Private sector workers stand to lose hundreds of pounds per year in pension pay-outs, if new plans from the Pensions Minister Steve Webb go ahead.

Under the proposed new regime, annual inflationary increases in pensions will be linked to the consumer price index (CPI), rather than the retail price index (RPI), which is generally higher. RPI currently stands at 5.1%, while CPI is only 3.4%.

KPMG estimates the move could reduce private sector pension liabilities by 10%, or about £100billion.

Neil Carberry, CBI Head of Employment and Pensions, said: “Statutory indexation is the biggest single regulatory cost borne by final salary schemes. That makes getting it right important. As CPI is a more accurate reflector of inflation for pensioners than RPI, we welcome this announcement.

“We hope the Government will also table overriding legislation, to ensure that schemes whose rules currently prevent them from taking advantage of this change can do so."

TUC General Secretary Brendan Barber commented: "The new Government undoubtedly deserves praise for their early commitment to linking the state retirement pension to the higher of earnings or prices, but it now looks as if most other pensions will go up less than they used to in most years.

"Over someone's whole retirement this will add up to a significant loss. CPI is less than RPI in most years because it excludes housing and council tax costs. But even if all other things are equal CPI is on average half a per cent less than RPI because it is calculated in a different way. If pensions in payment today had been linked to CPI instead of RPI for the last 20 years they would now be 14% lower. This is a stealth cut on the pensions of middle income Britain."

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William Hannah

Thursday October 7, 2010, 01:17

As a Public Sector pensioner I believe the coalition's proposal to change from RPI to CPI is not only immoral but also illegal. In particular I paid £30,000 from my salary to purchase added years in the PCSPS and to secure a pension for my wife and children, based on index linking using RPI. This was a contract between me and the Government. If the change to CPI happens in April 2011 then the Government is in breach of contract and faces legal action. I guess many thousands in the Public Service did the same. Hope you are all out there and doing something about this appalling betrayal.