The coalition government announced in the autumn that they would force pension funds to uprate their benefits only in line with the Consumer Price Index, instead of the more widely used RPI. The CPI is a less well known method of calculating inflation, as things such as train tickets generally use RPI (and will continue to use RPI, but that’s another blog). The big difference is that RPI includes housings costs, such as rent, mortgage interest and council tax. There are also things that the CPI includes but the RPI doesn’t such as Stockbroker fees and unit trust fees. As a result, RPI is usually 0.8% higher than CPI. There’s even a difference in the way the two are calculated which results in a slightly lower figure for CPI.
This can be highlighted from October’s figures where RPI is 4.5%, but CPI is only 3.2%
As you can see, this will mean a substantial change in the amount that pension funds would have to pay out – and over time mean savings of billions of pounds. Needless to say these plans caused uproar. So it was interesting to see Pensions Minister Steve Webb announce on Wednesday that they will be re-thinking the change, saying it would be unfair to force these changes onto people who joined pension schemes under the existing regime. “If you joined a pension scheme, [and] when you joined it the rules said that your pension would be protected by the RPI, and the scheme does not currently have the power to change its rules, we are not going to change that.”
Which is great. Except for one thing. This U-turn only applies to private sector pensions. For those of us in the public sector, even those who are members of fully funded schemes such as the LGPS, the change will go ahead. Even though millions of workers joined these schemes when the rules said RPI, they are now being forced to take a massive cut in their future pensions. It’s a blatant case of double standards. The average pension awarded from the LGPS is around £4,000 a year, and to reduce this even further just means that pensioners will have to rely on benefits such as pension credit to survive – so not only is it unfair, its illogical too, and wont save any money.
Are we all in this together? I don’t think so.