Up to 10m UK pensioners face being worse off under reforms

[dutchman]

Proposals to change way annual increases for defined benefits calculated



More than 10m individuals in the UK with traditional final salary-style retirement benefits would be £30,000 worse off under proposals to change the way annual pension increases are calculated, according to new analysis.

Currently, most people receiving income from “defined benefit”-style pensions in the private sector have annual rises in payments linked to the retail prices index, which measures the rise in the cost of a pre-determined basket of goods, including housing costs.

But shortcomings with RPI have led the government and the Office for National Statistics to set up a consultation on reforms that is set to close in August, which could see workplace pensions and other benefits rise more slowly each year. The ONS estimated in 2016 there were more than 13.5m members in private sector defined benefit schemes.

Under changes to the RPI methodology which would come into force by 2025 at the earliest, the annual measured rate of inflation would be lower, on average, by 1 percentage point a year, according to the consultation document.

Insight Investment, an asset manager, has calculated that linking defined benefit pension increases to CPIH, or the Consumer Prices Index with Housing costs, will mean tens of thousands of pounds less income for defined benefit pensioners.

“Insight Investment’s analysis shows that a member of a defined benefit pension scheme who is retiring at age 65 on a starting income of £20,000 could lose in excess of £30,000 over the course of their retirement,” said Rob Gall, head of market strategy at Insight Investment.

“If RPI is simply aligned with CPIH we believe this would significantly reduce the pension fund benefits received by end members.”

Barnett Waddingham, an actuarial consultancy, has separately calculated that someone currently aged 50, with an RPI-linked pension paying £10,000 annually from age 60, would have previously expected to receive about £500,000 in total if they lived to the average age of 90.

If the government goes ahead with the proposed changes, the member’s total payments would be reduced to about £425,000, it found.

“A change to CPI from RPI would benefit those who make payments based on the value of the index [such as pension schemes],” the Institute and Faculty of Actuaries said.

“However, those who receive benefits linked to the value of the index will be more likely to receive lower future benefits. As a result, changes to the measure of inflation used will create winners and losers in all cases, sometimes very unevenly.”

Clive Weber, pensions partner, with Wedlake Bell, a legal firm, said the proposed RPI reforms were developed in the pre-coronavirus world. “With both RPI and CPI at historic lows, there may be much more pressing post-Covid aspects to Government finances,” he said.

“One wonders what the answer is to members who have battled through Covid and job losses who now find that the Government reduces the long-term value of their pension.”

Inflation uprating for private and public sector defined benefit schemes has traditionally been RPI-linked. But since 2011, public sector pensions have been linked to CPI, an inflation measure that typically rises more slowly than RPI.

[rebbonk]

Wherever there's a pot of money, someone will be trying to rob you of it.

How many works pension schemes were plundered in the past? It still goes on but more subtly. The masses are not meant to have an easy retirement.

[Melisandre]

A man said the other day it seems they dont want any one of us to own any thing any more and my daughter said she is nt bothering with a pension at all she will invest it else where instead.

Cant say we was nt warned. Likely one reason they got rid of her.

[dutchman]

The consensus in the pensioner forums is that you're worse off having a private pension than not having one. They simply deduct the amount you receive from any other benefits you would otherwise be entitled to.

[rebbonk]

To a great extent that has to be true Dutchman.

I took my dad's advice, stay away from pensions where you can and invest for yourself. It's largely paid off.