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RPI to CPI costs pension savers £83bn

Robert Peston | 13:42 UK time, Saturday, 12 February 2011

On Friday, when the attention of a few of us was on some interesting events in Egypt, the Department of Work and Pensions published a new so-called impact assessment of the costs for members of defined benefit pension schemes of the government's decision that many of these schemes should up-rate their benefits in line with lower CPI inflation, as opposed to RPI inflation.

I am not sure why they published a new assessment, since it was only in December that the last such evaluation was put out.

But the calculation may upset the millions of people affected by the changes, since it says that the effect of the move from RPI to CPI for protecting the value of future pensions is to reduce the value of their benefits over the next 15 years by £83bn - which is 8.4 per cent more than the £76.6bn December estimate of the erosion of their wealth.

This is how the DWP puts it: "The main cost of this policy is to members of private sector defined benefit pension schemes who will see the anticipated value of their pension rights reduced and the value of their total remuneration package reduced in the short term."

The value of this reduction in pension rights and total remuneration equates to a significant £5.7bn per annum.

And for 2m relevant active members of pension schemes, there is a reduction in their annual rate of pension accrual - which is broadly the same as a pay cut - of between £2,250 per year and £2,500 a year on average.

In other words, they will be up to £2,500 a year worse off right now, on average. That is the implied fall in their total remuneration, including the value of the pension promise made to them by their employer.

But they won't feel it till they retire - when their pensions will be up to 12 per cent lower than would otherwise have been the case (in real terms) in 2027 and 20 per cent lower in 2050.

The corollary of course of the pain for those saving for a pension in a defined benefit scheme is an £83bn windfall for the companies and other institutions which sponsor these schemes.

John Ralfe, the pensions expert, puts it like this: "this is a reduction in the value of pensions to pension scheme members and is a transfer from them to shareholders".

Comments

Page 1 of 2

  • Comment number 1.

    Our corporations demand higher profits every year. This is all part of that.
    The peoples' demands are worthless.

  • Comment number 2.

    'On Friday...'

    'I am not sure why they published a new assessment, since it was only in December that that last such evaluation was put out.'

    Possibly it was a good day to bury bad news.

  • Comment number 3.

    "The Tory party are the political wing of the banking industry"

    As such they will change the rules to suit the companys upon whose boards they reside. The Torys will always put big business and the banks before the people, that's why they get into politics to improve their profits and bank balances.
    Hopefully we will see a repeat of Egypt on the streets of London before to long.

  • Comment number 4.

    Hi Robert,

    Your findings are shocking and with businesses planning to put the profits onto balance sheets it raises the question whether or not there should be a special tax so that shareholders do not benefit at the expense of workers and instead the 'savings' businesses put on their end of year results go to helping the UK financial situation.
    Why should shareholders benefit at the expense of future pensioners after all?



    If you want another top story can look at these figures and answer the question of why the London market is charging $16.14 more which is £10 a barrel more.

    This is at least a 10p tax on all motorists and is pushing up UK inflation as supermarkets and other shops pass on higher prices.

    Brent Crude Oil Futures $/barrel 101.41
    West Texas Intermediate Crude Oil Futures $/barrel 85.27


    What is going on? Is it because the UK markets are speculating with oil while the US markets are not because oil is seen as something to politically sensitive in America to play on the markets?

    Why are UK people having to pay so much for the same oil?

  • Comment number 5.

    That is why they have abolished the retirement age. Most of us will now have to go on working until we die. Or until we are not wanted by our employers any more. Of course if you happen to be in a job where you get millions in bonuses every year then, like Goodwin, you will still be able to retire at 50.

  • Comment number 6.

    As Robert Peston says, people will not feel the effect of the change until they retire. It will be quite a few years before it becomes noticeable, by which time this government will have gone and a new one will be left to pick up the pieces.

    But never mind, 'John Ralfe, the pensions expert, says "this is a reduction in the value of pensions to pension scheme members and is a transfer from them to shareholders".'. Since there are fewer shareholders than pensioners it will be a nice boost for them (myself included) which is the main aim of the exercise.

  • Comment number 7.

    I guess it is actually a transfer of weath from those pensioners and future pensioners who are in Defined Benefit schemes to those who are in Defined Contribution schemes. (As DC schemes own these shares) As more young people are in DC schemes, then this will be good for their generation who have lost out so much (over priced / unbuyable houses, and who will pay off the debts of the older generations current govt speding etc etc)

  • Comment number 8.

    Welcome to the new world. Every pensioner from the public sector is to have their pension downgraded from RPI to CPI from April 2011 - retired firefighters, military, teachers, civil servants and so on. We were ratted on by both the Tories and Lib Dems who said before the election that the pensions would not be tampered with. Now the same is going to happen to private sector pensioners. It's a big, big loss for us all as Robert Peston says. I wote to my (Tory) MP about it and got the usual twaddle letter in reply.

  • Comment number 9.

    I'm trying to get my head round this. Windfall payments were made to those who had pensions in companies which were demutualised. Now the shareholders in these pension companies want their pounds of flesh. Another case of previous generation getting something and the present generation paying for it.

    I have benefited from this, but I remember at the time being advised to vote for demutualisation, because I would get the windfall and the freer operational rules that applied to a shareholder owned company would mean that I could expect a larger pension. There may have been some who claim they foresaw the problems (20/20 hindsight is always present), but to someone who didn't understand the workings of the money market, you just go with the flow.

  • Comment number 10.

    The change to CPI affects public sector pensions too. As I understand it the inflation uprate this April will reflect the CPI last September - not the RPI at that time and which has been used for many years. This includes local government even with their fully funded scheme. This follows from the 1972 Act where the SoS can choose more or less what rate to compensate for cost of living increases.
    The rate in September 2010 was 3.1% compared with RPI 4.8% compared with real inflation of ??%.
    Ironically public sector pensioners will get an increase in April but their younger colleagues still in work will not this year or next.
    This is just one part of the coalition's slash and burn policy that has obviously provoked Ken Clarke to hint at his unhappiness.

  • Comment number 11.

    It's a disgrace, the private sector has duty to work hard to pay for the gold plated pensions of those who serve to the benefit of society. The alternative is demonstrated by MOD procurement, who find alternative methods of self-remuneration.

  • Comment number 12.

    Does this affect existing pensioners? I'm not clear. Thanks.

  • Comment number 13.

    There must be something wrong with the balance of the law in the UK.

    Can a government really alter the law in a way, which by its own admission, allows private companies to avoid paying the full cost of promises that they freely made to their employees. The objective of this change, appears to be simply that companies promised pension rights to employees before they signed an employment contract, which they now claim they cannot afford.

    Many of these very same companies donated campaign funds to the Tory party before the election with the expectation that this measure would be introduced if they won. Is this really legal in the UK?


  • Comment number 14.

    This data shows how the government have no morality at all. This action was theft by the state; the money had been promised, it was part of a contract on which the government have reneged. I know that there are money problems according to the government, but this is equivalent to a tax on all those who have an RPI related pension. It is discriminatory. If the government cannot live up to its promises made over many, many years, why should anyone else? Some, many object to the 'gold plated' pensions of public servants, but when the average is only a few thousand pounds, it will make a big difference to each individual affected. How can the government do this and at the same time pay large bonuses to bankers in banks that have been largely privatised? It just shows their nature - trust has gone.

    BTW, just seen
    "7. At 15:02pm on 12th Feb 2011, okeen wrote:

    I guess it is actually a transfer of weath from those pensioners and future pensioners who are in Defined Benefit schemes to those who are in Defined Contribution schemes. (As DC schemes own these shares) As more young people are in DC schemes, then this will be good for their generation who have lost out so much (over priced / unbuyable houses, and who will pay off the debts of the older generations current govt speding etc etc)"

    Sorry to disagree, but there is no evidence at all that the people mentioned in this will benefit from any of this, they are just poorer as well.

    The old defined benefit schemes should be a standard that the private sector should live up to. We should not be being dragged down to lower standards for pensions.

  • Comment number 15.

    The government has recognised elsewhere that historically CPI has been trending lower then RPI by 0.87 percentage points.

    The government review of the 2011 Pensions Bill (www.dwp.gov.uk/docs/pensions-bill-2011-summary-of-impacts.pdf) states that in relation to Indexation of pensions compensation by CPI rather than RPI, the impact on government will be "No impact. No additional costs to government expected".

    Adoption of CPI indexation means that the defined-benefit pension I will receive from my private-sector employer will be lower than it would have been under RPI indexation. What the government seems to have overlooked is that on every pound that my employer's pension scheme no longer pays me in retirement, the government will no longer receive income tax.

    In my less-prosperous retirement I will have the small consolation that the government has also (perhaps unwittingly) reduced their own income. Or will the government simply then respond by increasing taxation levels, meaning that part of the benefit to employers today from reduced pension costs will ultimately be paid by future taxpayers.

  • Comment number 16.

    Tony Blair came to power after assuring the City of his benign intentions. He then deregulated it and cut its taxes. Cameron didn't have to assure it of anything: his party exists to turn its demands into public policy. Our ministers are not public servants. They work for the people who fund their parties, run the banks and own the newspapers, shielding them from their obligations to society, insulating them from democratic challenge.

    Our political system protects and enriches a fantastically wealthy elite, much of whose money is, as a result of their interesting tax and transfer arrangements, in effect stolen from poorer countries, and poorer citizens of their own countries. Ours is a semi-criminal money-laundering economy, legitimized by the pomp of the lord mayor's show and multiple layers of deference in government. Politically irrelevant, economically invisible, the rest of us inhabit the margins of the system.

    Governments ensure that we are thrown enough scraps to keep us quiet, while the ultra-rich get on with the serious business of looting the global economy and crushing attempts to hold them to account.

    And this government? It has learned the lesson that Thatcher never grasped. If you want to turn this country into another Mexico, where the ruling elite wallows in unimaginable, state-facilitated wealth while the rest can go to hell, you don't declare war on society, you don't lambast single mothers or refuse to apologise for Bloody Sunday. You assuage, reassure, conciliate, emote. Then they shaft us.

  • Comment number 17.

    In the times when the stock market was booming companies (i.e. shareholders) were perfectly happy to take a "pensions holiday", i.e. to stop making contributions to their pension funds when they were in surplus. This allowed shareholders to take more of the cash as profits and dividends. That's fine, but the corollory of that is that when the markets are not performing well the share holders should be forced to cough up the cash to keep the pension funds healthy. This governement, and the last, seem to believe that shareholders should be able to take the cream in the good times but shirk their responsibilities when the going gets tough. The proposed change is a scandalous extension of that philosophy.

  • Comment number 18.

    @BobRocket

    "Possibly it was a good day to bury bad news."

    DWP are getting good at that one. They pulled a major benefit change (replacing DLA with PIP) in the middle of the worst of the snow last December - and most of the press (including BBC News) missed it entirely.

    We talk about the culture of the Treasury (or the MoD), but I would love to hear more about the DWP, who appear to me to be not just "a major spending department" but also feeling their power over their "clients".

  • Comment number 19.

    I wonder, if the Egyptians have finished using it, whether we could have the use of Tahrir Square?

  • Comment number 20.

    I really do wish that the general public had more of an appreciation of economics and financial theory. It is perfectly fair to voice an opinion on a particular political party and its leaders motives, but I would argue that the changes seen over the last few years to pension schemes within the UK (and globally) are primarily driven by economics.

    The trend in the private sector has been for defined contribution (DC) pension schemes to replace defined benefit (DB). For those that remain, it is typical for the 'details' to be changed; for example, from a 'final salary' to a calculated average etc.

    Why?

    Simply because they are too expensive. It is commonly accepted that DB schemes will continue to be phased out for this one reason.

    You only have to look at the pension fund shortfalls amongst our biggest FTSE 100 listed firms, particularly those that have been recently privatised (National Grid, BT, British Airways..... the list continues) to see the desperate state that the pension schemes finances are in.

    The only place DB schemes are commonly seen is in the publice sector, where it is commonly justified as one of a number of 'perks' to offset the 'fact' that public sector workers are paid less than their private sector counterparts. It should be noted that there have been results published by the Office of National Statistics (Dec 2010) which indicate that public sector workers actually get paid more for doing fewer hours (on average of course).

    Just as the private sector has had to cut back on overly generous pension schemes which it cannot afford, so too does the government. It would save more money for the DB schemes to be closed to new employees and replaced with DC schemes. However this would probably prove to be political equivalent of a 'coup de grace' to the incumbent coalition. As such, the government has decided instead to change the key parameter in calculating pension scheme benefits, which is slightly easier for the public to swallow.

    Whether this is 'fair' or not is of course a political (and philosophical) topic, but nobody can argue against the pressing economic issues that are driving change in the pension industry. I can only empathise with those people who are now being hit by the change and would ask them to try to understand the underlying economic issues.

    To the writer of comment 4.

    I am having real difficulty in understanding the 'point' of your comment. Mainly, it is because your post is riddled with erroneous statements about the crude oil markets. If you are going to write on such a topic, I suggest you google or wiki the topic.
    With regards to your last statement: Why are UK people having to pay so much for the same oil?

    1) It is not the same oil
    2) The price of oil is not determined by the government but by market forces, it is not a tax on the people of the UK (the price of petrol is a different matter entirely)
    3) Brent oil is not exclusively purchased by the UK, it is not the price of oil to people living in the UK, there is a little more to the name of these contracts

    Like many issues that have been debated concerning the cuts made by the coalition, this is another classic example of a 'fair' vs. 'necessary' argument which will have its proponents on both sides.

    All I would ask is that people try to seek clarity on such issues through careful, objective, and where possible, scientific justification for such decisions.


  • Comment number 21.

    So the change in calculation of pension benefits will result in an £83bn windfall for the pension provider's shareholders. Maybe the Treasury should consider doing what Gordon Brown did a few years ago and claim this amount back from these providers as a windfall tax. This would make a significant reduction to our national deficit. After all, we're all in this together aren't we?

  • Comment number 22.

    @4. At 14:44pm on 12th Feb 2011, F1 wrote:

    I'm not a trader, but my understanding is that these sorts of differentials can arise for many reasons, most commonly:

    1. Changes in inventories i.e. stockpiles
    2. Changes in refining capacity & constraints (often a bottleneck in the past although maybe it has improved a bit over the past few years - someone seems confident it will in future i.e. http://en.sxcoal.com/50903/DataShow.html )
    3. Changes in supply logistics & constraints e.g. shipping & terminals
    4. Changes in speculative investment e.g. hedge funds (ask Robert)
    5. Geopolitical considerations e.g. people lying about the size of reserves (no names mentioned), unrest in Egypt (potentially affecting Suez supply route), conflict in sensitive places that may disrupt supply (e.g. Niger delta)
    6. Bad weather e.g. hurricanes in the Gulf of Mexico
    7. Rumours about impending changes to any of the above

    My understanding is that WTI inventories have been higher than expected hence the falling price (despite recent cold weather in the US). Presumably, both Tapis and Brent have remained higher because they are 'under pressure' possibly for one or more of the reasons above. What are the exact reasons? I don't know. But my imagination tells me that it indicates something about the different factors affecting supply and demand in these different areas of the world. e.g. maybe it has something to do with the following suggestion:

    http://green.blogs.nytimes.com/2011/01/31/in-an-oil-price-gap-the-scent-of-tar-sands/

    ....or maybe it has something to do with the following suggestion:

    http://www.oil-price.net/en/articles/egypt-riots-and-oil.php

    ...or maybe it's because of this:

    http://www.reuters.com/article/2011/01/26/china-oil-idUSBGNPCE78B20110126

    ....but then again, maybe not:

    http://en.sxcoal.com/50901/DataShow.html

    ....and there's plenty more maybes where those came from (he, he).....

  • Comment number 23.

    As far as I can see there is no long term reason that RPI will be significantly higher than CPI anyway.

    The fact that it has been during a period when house prices were rising faster than inflation and when council tax was also above inflation is hardly surprising.

    This 'trend' is now being use to justify removing 10's of billions from pension liabilities which is either an error or which will lead to yet more pension defiicits in future years when CPI turns out to be higher.

  • Comment number 24.

    20. At 16:15pm on 12th Feb 2011, virtua28 wrote:

    "The only place DB schemes are commonly seen is in the publice sector, where it is commonly justified as one of a number of 'perks' to offset the 'fact' that public sector workers are paid less than their private sector counterparts."
    ----------------------------
    It is NOT a perk.

    Back in the 60s and 70s, there were pay reviews for civil servants. Their pay was calculated so that it was in line with industry for a broadly equivalent job - THEN 5% was deducted because of the non-contributory pension scheme. Pay, then, lagged; they were paid less, in effect to pay for their pension. They had no control over the government and what it did with the money, but in my opinion they paid for a benefit that is now not being paid- anywhere else this would have the potential to be classed as fraud and/or theft.

    IMHO, The government is morally bankrupt.

  • Comment number 25.

    'The corollary of course of the pain for those saving for a pension in a defined benefit scheme is an £83bn windfall for the companies and other institutions which sponsor these schemes.'

    This is good news for UK plc and hence good news long term for the UK as a whole. This will allow companies to reduce their unit labour costs and restore their competitiveness with other economies. Who said that the coalition does not have a plan to create jobs and stimulate the private sector?

  • Comment number 26.

    As far as being a good day to bury bad news. It is not as good a day as Diana's funeral.

  • Comment number 27.

    Dear moderators,

    Please could you remove my post from your website:

    22. At 16:28pm on 12th Feb 2011, You wrote:
    Your comment has been referred for further consideration.

    I'm guessing that the links are causing a problem. I can supply better links than these in another post for you to consider.

  • Comment number 28.

    F1

    Brent Crude Oil Futures $/barrel 101.41
    West Texas Intermediate Crude Oil Futures $/barrel 85.27

    This isn't some market conspiracy. There are differences in the quality of the oil produced in both cases and needing varying levels of refinement before they can be used for commercial purposes.

  • Comment number 29.

    Where was the outcry in June, 2010 when the Government soft peddled this idea by saying private sector defined benefit (DB) schemes would be able to use
    - the consumer prices index (CPI) rather than
    - the retail prices index (RPI) as the measure of inflation for calculating pension increases? At that point the change was a long way off (April, 2011) and was designed to coincide with a similar changes being introduced for public sector and state pensions.
    Maybe the common person just couldn't understand this stuff? It certainly gives me a headache!
    To put this change into context, in December 2010 the National Statistics Office announced that the annual change in inflation based on CPI was 3.3%, with RPI much higher at 4.7%. The Department for Work and Pensions (DWP) issued a "consultation" document re the impact of using CPI vs RPI.
    CPI is based on the HCIP (Harmonised Consumer Index Prices) which measures inflation on internationally agreed standards throughout Europe. It is based on a wider sample of the population than RPI. It is also the measure used by the Bank of England.
    The difference between the two measures relates to the items chosen for "the basket of goods" used and the weight that is taken into account in the calculation of each of those items. Most significantly CPI does not include council tax or mortgage interest repayments, both of which are included for measuring RPI.
    The understanding of all this is buried in what YOUR scheme says.
    The Rule sticks exactly to what pension legislation currently requires but does not refer to the underlying legislation eg “Pensions in payment in excess of any guaranteed minimum pension are increased in line with the percentage rise in RPI to 30 September with a maximum of 2.5% a year.”
    It is fairly typical for pension increase and deferred revaluation rules to be drafted differently. There are times when CPI will prove beneficial, but also times when RPI will prove beneficial. I suspect over the long-haul with austerity programs and a need at some point to raise interest rates, inflation will become problematic, and thereefore, CPI may actually prove beneficial.
    If your scheme falls into RPI & you want to switch to CPI, you will need to seek legal advice about what, if anything, you can do. With these types of rules, it is likely that you will only be able to switch to CPI in respect of future service pension accrual, if this is permitted by your scheme amendment power.
    Q. Will the Government include a provision in the new legislation requiring trustees to apply CPI (rather than RPI) automatically? If such a ‘statutory override’ is provided, it will enable employers and trustees to switch to CPI without needing to amend scheme rules. As the majority of scheme rules expressly refer to RPI, without it, a switch to CPI would require a rule change.
    A. The DWP consultation document emphatically states that no statutory override will be introduced for the switch from RPI to CPI, although the Government “welcomes views on whether there is any justification for overriding scheme rules of private sector pension schemes”. This consultation process is still open and will remain open till March 2, 2011.
    Q. The Pensions Bill 2011 contains no statutory override provision.
    If no statutory override is introduced, will it be possible for scheme rules to be amended to switch from RPI to CPI for both past and future service pensions?
    A. To enable schemes rules to be amended in this way the Government would need to introduce an exemption to Section 67 of the Pensions Act 1995, but will it do so? Section 67 prevents changes to private sector pension schemes which “would or might adversely affect” MEMBERS' ACCRUED RIGHTS.
    The Pensions Bill contains no modification power to allow schemes to use CPI in situations where Section 67 would otherwise apply but the DWP “welcomes views on whether it is right to rule out granting modification powers”. As Section 67 would apply to any changes, this would PRECLUDE rule amendments that apply CPI to accrued benefits (including deferred pensions).
    Q. Will trustees be forced to provide increases based on the better of RPI and CPI? In September 2009, CPI was greater than RPI.
    A. The Pensions Bill Government permits a scheme to continue to use RPI for pension increases and/or revaluation of deferred pensions, without having to apply a CPI underpin.
    In the consultation document, the DWP proposes a 60 day consultation with affected members for those wishing to change their scheme rules to adopt CPI. In theory, this should mean that employers and trustees who adopt CPI on April 6, 2011 because their scheme rules simply refer to the relevant pension legislation would not be caught by this new consultation requirement. But the draft legislation attached to the consultation document is too widely drafted and appears to catch so-called ‘automatic’ adoptions of CPI. This is wide enough to capture switches from RPI to CPI, whether as a result of a rule change or not. Employers with large pension scheme deficits who were hoping to take advantage of the switch to CPI (in the same way that the Government itself has done in the public sector), will be disappointed if their scheme rules expressly refer to RPI. Without a statutory override or modification power, those employers will only be able to make the switch for future service and then only if their amendment power permits.
    Conclusion: What does your scheme say? Who is acting on your behalf preliminary to the April 6th deadline? This may be a storm in a teapot when all is said and done.

  • Comment number 30.

    @4. At 14:44pm on 12th Feb 2011, F1 wrote:

    I'm not a trader, but my understanding is that these differentials can arise for many reasons, most commonly:

    1. Changes in inventories i.e. stockpiles
    2. Changes in refining capacity & constraints (often a bottleneck in the past although maybe it has improved a bit over the past few years - someone seems confident it will in future i.e. http://www.ineos.com/new_item.php?id_press=282%29
    3. Changes in supply logistics & constraints e.g. shipping & terminals
    4. Changes in speculative investment e.g. hedge funds (ask Robert)
    5. Geopolitical considerations e.g. discrepancies between the reported size and the actual size of reserves, unrest in Egypt (potentially affecting Suez supply route), conflict in sensitive places that may disrupt supply (e.g. Niger delta)
    6. Bad weather e.g. hurricanes in the Gulf of Mexico
    7. Rumours about impending changes to any of the above

    My understanding is that WTI inventories have been higher than expected hence the falling price (despite recent cold weather in the US). Presumably, both Tapis and Brent have remained higher because they are 'under pressure' possibly for one or more of the reasons above. What are the exact reasons? I don't know. But my imagination tells me that it indicates something about the different factors affecting supply and demand in these different areas of the world e.g. maybe it has something to do with the following suggestion:

    http://green.blogs.nytimes.com/2011/01/31/in-an-oil-price-gap-the-scent-of-tar-sands/

    ....or maybe it has something to do with the following suggestion:

    http://www.oil-price.net/en/articles/egypt-riots-and-oil.php

    ...or maybe it's because of this:

    http://www.reuters.com/article/2011/01/26/china-oil-idUSBGNPCE78B20110126

    ....but then again, maybe not:

    http://www.bloomberg.com/news/2011-02-10/china-oil-demand-growth-may-slow-noticeably-in-2011-iea-says.html

    ....and there's plenty more maybes where those came from (small joke).....

  • Comment number 31.

    Good ... because they're unaffordable for the UK taxpayer!

    I think also that existing pension contributions are protected on the old RPI scale ... but that is not covered with the analysis ... as I understand the pension changes, these apply to all pension contributions going forward from this year ... so if someone does not like it ... they have a the same right as anyone else ... and that is to change job and career and try and make better pension provision elsewhere ... just like nearly everyone else in the private sector has always had to do (apart from the 'fat cats').

  • Comment number 32.

    'In the times when the stock market was booming companies (i.e. shareholders) were perfectly happy to take a "pensions holiday", i.e. to stop making contributions to their pension funds when they were in surplus.'

    Pension holidays aren't all they were cracked up to be. There are strict rules relating to tax avoidance over how much of a surplus firms are allowed to run. It is not as black and white as saying companies are greedy and out for themselves. The long and short of it, is that we are all living longer and in a low inflationary and interest rate environment. Defined benefit schemes in their current form should have gone the way of the dodo a long time ago.

  • Comment number 33.

    Whilst the mention in Chancellor Osborne's budget speech last summer of adoption of CPI indexation for public-sector pensions was probably noticed by many, the subsequent statement to Parliament on July 8th by Pensions Minister Steve Webb of adopting CPI for future statutory indexation of pensions in general gained little public attention. For its text see www.publications.parliament.uk/pa/cm201011/cmhansrd/cm100708/wmstext/100708m0001.htm#10070869000014

    Indexing public-sector pensions to a lower inflation figure will potentially yield a saving for government, but what I'm less clear of is the real advantage to the government of reducing future private-sector pensions.

    I'm surprised that the press has not previously made more fuss about the government having de facto reduced the pensions of members of private-sector pension schemes. The government's own analysis suggests that 80% of pension schemes are linked to whatever inflation figure the government adopts for statutory indexation, either for pensions in payment or deferred pensions. That's no small number of current and future pensioners (and voters!).

  • Comment number 34.

    Took a long time for it to sink in. I have been telling my MP since last year. He is conservative so no longer responds.

  • Comment number 35.

    As a BT pensioner my scheme has told me that it "must" follow the governments lead and move to CPI. And to correct an earlier post this includes all pensioners not just future ones. Obviously I am upset that money promised is being taken away from me just because the government wants to save on public sector pensions. Howver I also accept that the yawning hole in the pension fund was unlikely to go away any other way and might have bitten me at a later stage. I also accept that I am still one of the lucky ones who have an index linked pension. I still wonder that the independent pension trustees who are supposed to be representing my interests cannot just say "no, we will continue with RPI as promised to our people".

  • Comment number 36.

    Please remember SPENDING=INCOME
    Reduce my income and I reduce my spending

    Government wants us to spend to get the economy going and provide jobs.
    Perhaps I just don't understand, but reducing the spending power of a sector that sees higher than average inflation in its costs and spends to meet its needs [because no-one else does] seems to me to be the wrong action. Driving the elderly into debt is just crass. Should they die without funds to meet debts; who pays?

  • Comment number 37.

    Please can someone explain to me how I determine whether my private pension is affected...I havent a clue whether it's rpi or cpi whatever those terms mean. I'm not stupid by a long way but I don't understand most of Robert's article as I know very little about pension schemes, but it does sound alarm bells. I was about to make an extra payment into my pension scheme before the end of the financial year, now I'm wondering whether I should bother.

    Also wondering about the American model of investing in shares for retirement versus pensions... is this a better thing to do these days? Is being tied to taking out an annuity a bad thing? Thanks.

  • Comment number 38.

    I'm guessing RPI is retail price index but what is CPI?

  • Comment number 39.

    I think my question should have been, how do I tell if my pension is defined benefit or not? I haven't a clue what that means!

  • Comment number 40.

    Well, we seem to dish out benefits to all and sundry without question so someone has got to pay for them. Why is it always the rich that are targeted to pay these benefits. Oh, I know, its because they took the risks and made themselves some income, only to have it taken away in taxes.

  • Comment number 41.

    @ virtua28 Post 20

    @ Duxtungstu Post 30



    Yes the price of oil does vary by $1 to $2 but it is now so wide you could hire a supertanker in the US and bring the oil over from the US to Europe.

    Is is very rare the price differs so much.


    Countries are able to buy on either oil market.In Europe prices are falling while in the UK they rise.
    http://www.telegraph.co.uk/motoring/news/8311355/Price-of-petrol-falls-in-Europe-but-climbs-in-UK.html

    Who is benefiting from this then?



    If you are related or paid for by any trading firm or third party can you disclose that when you write on here.

  • Comment number 42.

    I don't necessarily disagree with the use of CPI rather tha RPI, but I am suspicious of the timing of the change. When CPI was running higher than RPI it seemed fine for our providers inc. govt to use RPI, but with mortgage payments set to rise (the main difference between CPI and RPI) then we can expect a long period of RPI running higher than CPI, so now they want to switch. Had this change been proposed at a time when the difference was relatively neutral, then it would be more pallatable.

    Robert, perhaps you could show us a chart comparing CPI and RPI month by month over the last 3 years.

  • Comment number 43.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 44.

    Why do the majority of posters on these blogs assume that if shareholders benefit from a change in the rules, it is generating wealth for the nebulous rich. The largest shareholders are invariably insurance companies or investment managers holding the interests of small savers and life and pension policy holders - a much larger number than those lucky enough to be in a company pension scheme. I am happy; my pension invests directly in shares and I will benefit.
    It could be that these sort of adjustments are blown up by the BBC because it too has a pension scheme and its employees will be in the minorioty of the population adversely affected by the changes, lightening the load on the TV licence. Good journalists would always acknowledge their interests, but the BBC has changed and not for the better.

  • Comment number 45.

    21. At 16:22pm on 12th Feb 2011, HFMAN wrote:
    So the change in calculation of pension benefits will result in an £83bn windfall for the pension provider's shareholders. Maybe the Treasury should consider doing what Gordon Brown did a few years ago and claim this amount back from these providers as a windfall tax. This would make a significant reduction to our national deficit. After all, we're all in this together aren't we?
    ==============================================================

    I quite agree.

    It would cut the much vaunted deficit in half and would mean the Government wouldn't have to cut so fast and so deep to make their deficit accounting sums add up. The fact that the £83bn is not going to the Treasury seems to me to be additional evidence that the cuts are indeed ideological.

    Heck, if the value of the assets tied up in the UKFI were also taken in to account the government budget would just about balance without the need for any cuts at all.

    It is an outrage!

    Robert, you are an editor at BBC News. You have it in your power not to let Iain Duncan Smith's DWP bury this news.

    The Tory led Government needs to be nailed hard for this.

  • Comment number 46.

    It's about time people realised that pension schemes were never designed to provide people with pensions upon retirement. They are the biggest organised scam by financial institutions to defraud workers of their hard earned salaries and put them straight into the bonus packages of legalised thieves.

  • Comment number 47.

    42. At 18:05pm on 12th Feb 2011, ooozzzelll wrote:
    Robert, perhaps you could show us a chart comparing CPI and RPI month by month over the last 3 years


    You can get the stats here.
    My guess in the short term is that the gap will get narrower this year then who knows?

    http://www.statistics.gov.uk/CCI/nugget.asp?ID=19

  • Comment number 48.

    Re 42

    Here's such a chart: http://www.svrsig.org/inflate.pdf

  • Comment number 49.

    To all those who voted Tory, I'd love to say: "serve you flippin' right". The problem with that is that it is not just those who thought untold riches would be theirs if they voted conservative who will lose, but the rest of us poor fools who didn't. It's all terribly reminiscent of Mrs Thatcher who complained "Labour isn't working" when unemployment stood at 1m, and then proceeded to destroy the economy - especially manufacturing - and deliberately increased and held unemployment above 3m for more than 10 years; all designed to remind the "working classes" how lucky they were if they had a job, and don't forget to tug your forelock on the way past.

    As it was then so its now - it is the Tory squirearchy and their chums who'll benefit from the transfer of wealth from the poorest to the richest. Twas ever thus, and foolish of anybody to imagine it could ever be different. From those that have least shall be taken the greatest amount, to those that have most (and have never done a real day's work in their life) shall be given.

    "We are all in this together" comes the message over the megaphone from Messrs Cameron et al as they row away from the sinking HMS UK in the only lifeboat available - our accumulated pensions and savings neatly tucked into their back pockets - whilst we, the plebs, go down with the wreck created courtesy of Osborne and his pets, Dogma & Entitlement.

  • Comment number 50.

    I am ten years away from retirement, but don't have the comfort of a final salary pension to look forward to, relying instead on the contributions I make into a pension scheme, and the performance of the investments of that scheme. It seems to me that the changes being proposed will be good for me and the millions like me. Final Salary pension schemes are not an 'entitlement' to be guaranteed by future generations of tax payers, or by the crippling of industries burdened with maintenance of such schemes.

  • Comment number 51.

    I like jigsaws - particularly the economic sort.

    The one I have in front of me was started in Autumn 2007 - it depicts the events surrounding the beaching of the Sub-Prime pleasure cruiser. Although it is only partly completed, a picture is beginning to take shape.

    I've slotted in the cuts and tax rises announced to date, and the piece that shows the MPC's inability to raise interest rates - despite the probability of serious inflation. The latter connected to the piece that dealt with the savage cuts to savers income. The very odd-shaped parts dealing with bank bailouts and QE were completely unexpected, but improved my understanding enormously.

    The emerging picture was enhanced a few days ago when I found another piece donated by George Monbiot (The Guardian - 7th Feb. 2011), which portrayed the tax avoidance measures to be provided to medium/large companies. I was lucky to discover this one, as it has been well camouflaged. Thank you fellow posters!

    And today I have one more piece of the puzzle. Unfortunately, it is another red one and I can't help wondering if there is a bit of color bias to this picture! All the cool, soothing blue pieces seem to be focussed at the top, whilst the reds and drab hues are at the bottom.

    I don't think I am going to be very impressed with this jigsaw when it is finished!

  • Comment number 52.

    @41 You are quoting the prices of futures contracts ie bits of paper and not physical oil. The volume of these is far in excess of the actual amounts of oil because they are financial instruments. They may form the basis of physical deals but there will be location based shipping costs to add on to both.

    Also the two oils are of different qualities and hence value which varies with market demands for petroleum products.

    FOB spot market prices for petrol or diesel would be better comparisons.

    @39 your pension is "defined benefit" if you have a contract / handbook showing you what proporttion of your final salary you will earn as a pension.

    It is "defined contribution" if you pay money into a personal pot and buy an annuity at going rates when you empty the pot at retirement.

  • Comment number 53.

    23. At 16:36pm on 12th Feb 2011, Rafter wrote:
    As far as I can see there is no long term reason that RPI will be significantly higher than CPI anyway.

    The fact that it has been during a period when house prices were rising faster than inflation and when council tax was also above inflation is hardly surprising.

    This 'trend' is now being use to justify removing 10's of billions from pension liabilities which is either an error or which will lead to yet more pension defiicits in future years when CPI turns out to be higher.



    There are two differences between Retail Prices Index (RPI) and Consumer Prices Index (CPI). The first is to do with which items are included, for instance housing costs are in the RPI, but are mainly excluded from the CPI. As your comment suggests this means that the RPI and CPI will vary up and down over time, but shouldn't mean that one will be consistently higher than the other.

    However, there is a second difference which has received relatively little attention. This is in the method of calculation. Both RPI and CPI are made up of a large basket of items, but the way in which they combine individual inflation amounts on these items is very different. The RPI uses the arithmetic mean, which is what most people would understand as an average, i.e. the average of 3, 4 and 5 would be 4 (total 12 divided by 3 items). The CPI uses the geometric mean, which works by multiplying all the individual elements together and taking the root of the number of elements, i.e. the geometric mean of 3, 4 and 5 is the cube root of 3x4x5 which is about 3.915. Except in special situations, e.g. dealing with negative numbers, the geometric mean will always give a lower value than the arithmetic mean and therefore the CPI will, over time, be lower than the RPI (historic difference of over 0.5% per year attributable just to this difference in calculation method).

    This method of calculation for the CPI does not seem logical. The government's justification for it is that people will react to higher prices by substituting the things they buy for cheaper goods, but such effects should be dealt with by changing the mix of items measured (such changes are made constantly). The impact of moving to the CPI is therefore to continually understate the true impact of inflation.

  • Comment number 54.

    #45 - I must correct myself. I didn't read Robert's post properly and hadn't realised the £83bn was over 15 years which means it isn't half the deficit in one year.

  • Comment number 55.

    Anybody remember Robert Maxwell swindling his Pensioners....?

    That was clearly just the tip of a very large iceberg, of which this switch from RPI to CPI is the latest example...

  • Comment number 56.

    With over 50% of Conservative party funding, let alone speaking invitations, directorships etc to individual Tory ministers is it all surprising they quickly change the law to allow tranfer of £83billion from working people to those shareholders who fund them

    evil kleptocracy.

  • Comment number 57.

    I'm sorry but to me you're not actually explaining what this means.

    Businesses need to pay in less for their staff's private pensions? Is that it?

  • Comment number 58.

    I don't know of anyone who believes the RPI or CPI current rates. One can only assume the statisticians compiling them have not been shopping recently. There should be a pensions index reflecting the bias towards food and utility bills including petrol and council tax (Free bus pass doesn't help if there is no bus service and it gets harder to walk or cycle long distances.)

  • Comment number 59.

    While all this fuss is going on about National Forests, the Big Society, Pensions and Project Merlin a real coup d'etat is going on under the radar with the Finance Bill 2011, called by Monbiot "the heist of the century". Read a layman's explanation of it here and PLEASE spread the word:

    One Sausage Too Many – stealing from the poor and giving to the rich
    http://sturdyblog.wordpress.com/

  • Comment number 60.

    All you folks in your working phase of life wise up. Don't put all your eggs in the defined benefit or defined contribution pension schemes, spread your savings and your risk. Put away what ever you have left in Widows and Orphans Bonds (OK the yields are not good today but trust me). Put others into Shares (look to the future. What is going to be scarce - energy maybe commodities), put some also into Managed Funds. Look to downsizing your house when the time comes. Hey presto, you might end up with a reasonable retirement. Whatever you do don't get into unsecured debt. Try to get debt free ASAP. Also, put your savings profile into a spreadsheet. Try different scenarios. You might be surprised with what you could have at retirement. Above all, manage your assets and don't assume Government is on your side. Good luck!

  • Comment number 61.

    Psst...If you want take part in a real revolution in Britain, build and sell houses at cost price, no need for usurers......don't tell anyone I told you.....mums the word !

  • Comment number 62.

    i am not going to pretend i know what it means but for many years now Governments are all about robbing the poor to give to their mates, we at the bottom are always going to be the losers....

    Its about time we had the pension entitlement of MP's , Euro Mp's and the Assemblies brought into line with normal peoples pensions they have an extremely lucrative deal, we are all in this together after all.

  • Comment number 63.

    Face it guys, the country is broke and we all have to take our share of the pain. If Labour were in power they'd be doing the same despite what they say. And while they did not cause the credit crunch they are the ones who did not save for the rainy day...

    Is it really political?

    My pension was raided first by the Conservatives and then by Labour with the abolition of ACT in 1999. Our friend Gordie - Mr Prudence - was told that this and other changes would take £67 billion off the value of pensions (but not state ones). So he did it anyway. They both did.

    And what happens to the £83bn? It reduces the pensions black hole and frees up capital for companies to invest in productive assets and jobs (sadly abroad all too often). Perhaps my own modest 'retirement pot' will benefit...

    Beware politicians bearing miracles.

  • Comment number 64.

    Gordon Brown plundered our pensions to the tune of £5bn a year, but he needed the money to fund activities which would benefit the average person in the street. Cameron and his gang are also going to rob our pensions of £5bn a year which will go directly into the pockets of the Tory paymasters. No surprise there, then! Why do politicians persist in thinking that we are all idiots?

  • Comment number 65.

    "Grond0" A good piece but it also needs to be pointed out that things like Road Fund Licence, and Council Tax cannot be sourced more cheaply. Also, changing to cheaper goods or services in reality means a change to inferior ones in many cases. A drive to the bottom.
    With all the talk of RPI and CPI the real issue is getting clouded. The inception of RPI was to offset the depreciation in the value of pensions. It doesn't matter which index is used as such, only that it fairly represent pensioner inflation. The portrayal by the Coalition Government that CPI does this better than RPI is a nonsense - and one unsupported by financial experts. In fact, actual inflation for pensioners is generally considered even higher than the RPI figure. The move to CPI is just another government cost cutting measure - only a permanent one - rather than one to more accurately reflect true inflation.
    There may perhaps be a case for pensioners to forfeit some of their inflation-proofing in these hard times, as wage earners are seeing their income hit by lack of pay increases, but if/when times improve those workers can, and will, expect at least pay rises to match or exceed inflation. Pensioners will not have that option.
    Another issue is, why should private pension schemes be affected by this change? It will only happen in cases where the trust deed relates to the relevant Parliamentary Acts (usually older schemes) and not more recent ones specifically linked to RPI. One suspects that the only reason for the existence of the differences between these trust deeds regarding this linkage is because the later ones worked on the assumption (as no doubt did everyone else) that RPI was the measuring index, and if necessary, may be modified occasionally, but never that it would be replaced.
    This government is making sweeping changes across the board for which it received absolutely no mandate, and which in many instances appear ill-thought through, driven by ideology and too hastily introduced. They need to beware of unnecessarily alienating a huge cross-section of the electorate.

  • Comment number 66.

    The government has a completely unfunded and unaffordable pension liability in respect of all public sector workers. It had the choice between starting a fight with unions and employees over the closure of these defined benefit schemes, or making changes to the rules and to their taxation making them less attractive to be in and less costly to fund. They chose the pragmatic option.

    The truth is that if you have long service in any defined benefit scheme you are already one of society's winners. There are still vast numbers who will depend solely on their state pension.

  • Comment number 67.

    It's harsh but a fact that anyone investing in pensions is playing a mugs game; always has been. You put your hard-earned money into a pot which people invest and take commission from endlessly, the government taxes it's growth and you have this "bait" of a 25% tax free lump sum which is pathetic compensation for the denial off use of your own money for decades, and the commissions paid.

    This change is a nothing compared to the total scam that pensions are.

    Don't invest in pensions; keep your money, use it intelligently and wisely, do not behave like a child and don't let others treat you like children.

  • Comment number 68.

    In reply to comments made by BluesBerry, entry #29:
    The trustees of my private pension scheme last month already changed the wording for the criteria concerning any future pension rises with the following statement:-

    "All pensions in payment are reviewed each year by the Company and the Trustee. They are guaranteed to increase by inflation up to a maximum of 7%."

    In this statement the wording has changed from "RPI" to "inflation". This means the pension trustee's will award any future rises based on the lowest figure of either the CPI or RPI.

    Pensioners will always come off worse in favour of the parent company or Government.

  • Comment number 69.

    Retail Price indices does NOT include actual current housing costs.

    Because the ONS has no reliable information abut the amount of interest that families are actually paying. The ONS has no access to mortgagees' actual interest liabilities.
    Compensating for that lack of information is difficult, so the ONS uses the current 'offered rates' published by mortgage lenders.
    As readers will be aware, the current offers include interest margins well above the average of the last four or five decades. In the 1960s a competitive mortgage rates was BoE rate plus one percent.
    Over time that margin gradually declined to around an half percent margin or less. Current margins are now at a record three or four percent above BoE repo rate - but very few of those are actually in issue.
    This is important because the inclusion of mortgage costs is the principle differential between the cpi and rpi. If the ONS had actual mortgage prices instead of the offered rates it might well be that the true RPI rate would be lower than the CPI

  • Comment number 70.

    Bottom line in respect of pensions, like it or not, is that UK plc can't afford to keep paying final salary schemes. Sorry, but it's a fact. Average % of life spent in retirement nowadays (and more importantly, for future generations) is just so much more than in previous years.

    So long as you accept the above (which I'm afraid you have no choice but to accept), then you'll have to accept something drastic has to be done. This is one small step along the road.

    Moan if you want - it won't alter the facts one jot.

  • Comment number 71.

    @dontmakeawave

    Well you are certainly in another world.
    Most people can pay into their pension (if I don't pay into my work pension I can't have the employers contribution paid into another pension) but don't have spare money to 'invest'.
    Spread investments? Fine if you have a lot of money to spare, I bet you've got more invested than I'd make in a few years. You need a big pot to have a decent investment, I don't have that initial pot!

    Downsizing my house? What house? I don't own a house.
    Alright for anyone who is say over 60 now who bought cheap and is now doing well off the increase in house prices. Pity anyone under say 30 who will probably never be able to afford one.

  • Comment number 72.

    Well we've seen what the Egyptians can do. General Strike, anyone?

    A good time to "bury bad news" perhaps?

  • Comment number 73.

    May I point out that the collapse of pension schemes is directly the result of the interest rate policy of the 'Fools' (BoE). These people are not so stupid that they will not have understood that one of the direct consequences of a 0.5% base rate was inevitably going to be a gigantic leap in pension fund deficits (along with sucking wealth away from the prudent to the feckless). This in its turn has resulted in the fiddle by the regulator (HMG) to change the index base.

    Let me raise another even more important issue : is it because most economic commentators are men that very little mention of the huge damage to women's lifetime earnings inherent in raising the pension age has simply been ignored? All women suffering from having to work for five more years to get a pension will lose over £25,000 of their lifetime earnings. Already they get smaller incomes and this just adds insult to injury, but most male economic commentators just ignore this gross unfairness - why?

  • Comment number 74.

    67. At 21:58pm on 12th Feb 2011, bogbrush wrote:
    It's harsh but a fact that anyone investing in pensions is playing a mugs game; always has been. You put your hard-earned money into a pot which people invest and take commission from endlessly, the government taxes it's growth and you have this "bait" of a 25% tax free lump sum which is pathetic compensation for the denial off use of your own money for decades, and the commissions paid.

    This change is a nothing compared to the total scam that pensions are.

    Don't invest in pensions; keep your money, use it intelligently and wisely, do not behave like a child and don't let others treat you like children.

    ==================================================

    If you're not an IFA, you ought to be - best advice I've seen in ages!

    Obviously, it is vital for people to provide for their retirement. The key issue is - how to achieve that security?

    Trust in the system used to be accepted without question. A long-term commitment was made, and promises were honored. Ethical behavior mandated that obligations were met.

    Fast forward ...

    Now, it's a case of pie-extraction. A progressive divi-up if you like - leaving the poor, unfortunate contributor with the remaining morsels. Somehow, that prospect never appealed to me. Never fancied the idea of letting someone live a desirable lifestyle with my cash.

    So, my wife and I invested our spare cash in property. That was OK until late 2007, and then IT HAPPENED! But we had one critical advantage over a fixed pension psychology - flexibility!

    Today, we've downsized and dumped the property idea. Equities seem to be in a bubble phase, so any spare cash is invested in gold. May be a good play or not - who knows?

    The key point is that we control our future - not the greedy market leeches or the unreliable political establishment.

    Trust ... such a simple word, but how misunderstood!

  • Comment number 75.

    "The value of this reduction in pension rights and total remuneration equates to a significant £5.7bn per annum."

    Hmm...almost exactly the amount that Gordon's annual tax on pension fund dividend income brings in (that he introduced during a stock market boom and against the advice of Labour's own Pensions Minister, Frank Field). Don't remember half of the people complaining here now complaining at that time.

  • Comment number 76.

    I do wish Robert Peston and all would stop usingthe INFLATION word when discussing the COST OF LIVING. They are not the same thing. The RPI and CPI are just a simple way of informing us that prices of consumer producs have risen which most of us know already. An increase in any commodity price is not in itself Inflationary but may very well be the result of such. Why do we have Inflation at all? Because our beloved Government andthe BoE insist on borrowing money on our behalf and in so doing Devalue our currency and so our buying power. We our told that we are currently borrowing one pound in every four the Government spends. That in my calculation is around 25% INFLATION and not the 3% we are told.
    It is this act of pumping-up the economy with borrowed money that Inflates. Inflation is a volumetric act whereby simply increasing the unit cost of something is purely linear.
    WE are being hoadwinked by our rulers,and more the pity,so many even on this site continue to repeat their propaganda. There is within our midst an evil that is Government and their illegal acts have been carried on over many generations. We cannot spend or way out of an overspending crisis unless your name is Gordon Brown. Every equation has to balance eventually. Unfortunately we common workers must work till we drop to correct a situation that is not of our making. And human nature being what it is does not preclude this shambles from being repeated in another two generations time. So look on the bright side for most of us will be long gone by then.

  • Comment number 77.

    75. At 00:22am on 13th Feb 2011, suchan104 wrote:
    "The value of this reduction in pension rights and total remuneration equates to a significant £5.7bn per annum."
    Hmm...almost exactly the amount that Gordon's annual tax on pension fund dividend income brings in (that he introduced during a stock market boom and against the advice of Labour's own Pensions Minister, Frank Field). Don't remember half of the people complaining here now complaining at that time.
    ==============================================================
    Hmm. They might still have objected though.

    However, in the spirit of equanimity you offer, I will concede that on account of this it is one less stick for Tory to beat Gordon Brown with. As if Tory will stop.....

    If that is the best spin you can put on this you must be struggling.

  • Comment number 78.

    Thank god we live in a democracy otherwise we would be in serious trouble. May I invent a new word at this point, Capitocracy. Definition of Capitocracy: a society whose people have the freedom to enslave themselves with their own greed.

  • Comment number 79.

  • Comment number 80.

    What a nation of dim wits we must be, all of the present circumstances were clearly foretold by many before the charade of "agreeing with Nick". It was clear that devious "PR" Dave was fronting the most regressive ideologue, that even Thatcher in her pound cutting days could not have envisaged. It is getting to be a broken record, but the prophet Peter Cook in the film "The Rise and Rise of Michael Rimmer" predicted the present government - its progress to power and its purpose.

    Why do we all complain now when what we were told would happen occurs? Why do we all long for the day when we can get rid of this government - when they are aggresively gerrymandering boundaries to ensure their perpetuation for many generations? Take the opportunity to voice your disagust in ways that hurt them most - boycott their financiers, have your wages paid into the Post Office/Credit Union, withdraw your funds from your High Street bank and do likewise. Bet your bottom dollar, just like the Building Societies before them the "banking carpetbaggers" will be gunning for them as well!

    Let our colleagues in North Africa be a model to us all - just because we have a sham of "elected government" does not mean we have democracy of truely one person one vote. For example who chooses the candidates you have to select from? Who decides on the issues that are relevant to your situation? Just as with the total disregard as to employment contracts that define pension commitments within said contracts signed and agreed by both parties (be it private or public employer) the courts should be used to ascertain the legallity of their alteration by one party without the agreement of the other. Compensation of a grand scale could be liable, if, as in the case of slasher Gove, the High Court finds these actions to be illegal. The Budget has already been attacked on the grounds that it did not take due care of its responsibilities to equality of outcomes - so should the present financial entrapment of generations of the British public.

    This May we, the hard pressed idiots that allowed this government to come into existance, have the opportunity to frighten the Conservative and LibDem MPs by voting out every councillor with allegience to either of these parties. Better local government run by the Raving Loony Party or even local independents - let the "big society" choose by putting forward one of your own community as a true representative of the people.

    In all of this I wonder whether MPs' pensions will be liable to alteration (approx. pension of £2000 pa x years of service - not sure whether it is even non-contributory). Will Sir Fred's pension now be greatly reduced, or Mr Diamonds, probably not as they have vast amounts of shares stuffed under the bed, all increasing in value as a result of their chummies "adjustments".

  • Comment number 81.

    #79 reincarnation on capitocracy ...

    but only in America, so that does not count, as they don't really speak English, as exampled in President George W. Bush.

  • Comment number 82.

    #76 Geoffrey Bastin

    But what do we have to sell? Historically this nation has been dependent on others; during the First World War we would have run out of munitions had a deal not been struck to import German produced chemicals (hence the creation of ICI which has since been sold to foreign owners). Inflation is built into profit as what is charged covers all costs, investments, debt payments, plus profit which thereby inflates the value - hence VAT. If prices for all commodities stayed the same it would ignore global demand, thus the 1970's hike in oil prices when the "middle east" took revenge on the "western powers" for supporting Israel - plus their wish to become wealthier along the American Dallas model.

    Keynes would argue that full employment reduces government debt, but only if maintained, thus the slash and burn under Thatcher produced an ever increasing "benefit cost", and the highest inflation known in the UK for hundreds of years, out side of war economies. Investment in those parts of our society that produce future wealth would seem sensible (adequate schools to ensure future quality of labour, hospitals for increased standards of health, etc.), while re-directing the vast sums spent on "benefits" to those without employment by creating public sector jobs. What causes the greatest harm is the abrupt curtailing of the investment cycle. Example Mr Whillets decimation of research funding, when for every £1 spent on medical research there is a 40p income per annum for 2025 years (better returns than the financial sector can return).

    CPI and RPI are reflections of changes in spending power, thus for every increase in either the value of personal remuneration decreases. Thus the young person entering the employment market, with an expectation of working for maybe 60 years will find that their planned pension income will be worth nothing by the time it is acieved. As an example in the 1970s an endowment policy purchased with a final payment sufficient to purchase a house, by maturation would not provide enough to purchase a very small car (even if made in India).

    If pensions can be instantly adjusted from RPI to CPI, will the same be done to Capital Gains Tax which in its calculation is allowed a depreciation of gain based on RPI? Will Sir Fred's shares be taxed on a rate based on relative increase in value of 3.1% or 4.8%?

  • Comment number 83.

    I don't understand this at all...
    I thought DB pensions were based on final salary (e.g. 2/3 of final salary).

    Can someone explain where RPI and CPI come into the picture?

  • Comment number 84.

    Well I suppose I’d better put in my “two-penny” worth.

    It’s my belief that under current contract law that if your pension arrangement documentation notates the words “RPI” or “CPI” then they cannot be changed now and a path to a claim could be established as this would amount to a clear breach.

    There are in recent years changes that have been made to contract law that apply retrospectively, but they are few a far between and mostly involve minor items (TUPE) and some tax issues which were meant to safeguard employees rights but turned out in practice to have the opposite effect but these are still ongoing issues not yet formalised legally by real cases in court.

    If no mention (documented) as to how any pension is calculated (a legal requirement) where the scheme is “opted out” of the state pension scheme then again a case could be brought in theory.

    However if the words RPI, CPI are not exclusively utilised in the document that amounts or makes up “the agreement” between the employer and the employee, then references to the “rate of inflation” if contained in the agreement, is open to interpretation at the time it is challenged by an employee who maybe was lead to believe something different at the time of entering into the agreement.

    Either way once the word “RPI" or “CPI" have been notated then its legally binding on both sides pending re-negotiation.

    As far as I’m aware (with the noted exceptions above, which seem to have gone unnoticed), no government can retrospectively overturn a legally binding agreement (contract) as this is outside of their remit whatever the government may think it can do.

    Everybody in England is subject to the law first; this includes politicians and the banks. We are all equal under it (in theory).

  • Comment number 85.

    I decided some time ago that when I was no longer financially self-sufficient, I would "switch off" rather than be a burden to others. It seems that time may be closer due to this change in regulations. Hopefully Soylent Green will have been developed by then.

  • Comment number 86.

    QUOTE

    57. At 19:51pm on 12th Feb 2011, opaqueentity wrote:
    I'm sorry but to me you're not actually explaining what this means.

    QUOTE

    83. At 03:33am on 13th Feb 2011, marchino wrote:
    I don't understand this at all...
    I thought DB pensions were based on final salary (e.g. 2/3 of final salary).

    Can someone explain where RPI and CPI come into the picture?

    COMMENT

    Looks like I'm not the only one! I would love a plain English explanation of what this article means too for those of us who are not experts in the business/ pensions field.

    I just about understand the difference between RPI and CPI now thanks to another poster, but I still don't know what a "defined benefit pension scheme" is and how to determine if I am affected. Soime people are suggesting it means final salary pension scheme. Is that the case? If so why not call it that? I am thinking it must be affecting more than just those types of company pensions? Some people are referring to private pension schemes being affected.

  • Comment number 87.

    Does it affect dormant pensions that I no longer pay into?

  • Comment number 88.

    ~20
    "The only place DB schemes are commonly seen is in the publice sector, where it is commonly justified as one of a number of 'perks' to offset the 'fact' that public sector workers are paid less than their private sector counterparts. It should be noted that there have been results published by the Office of National Statistics (Dec 2010) which indicate that public sector workers actually get paid more for doing fewer hours (on average of course)."

    This may be true now, but it certainly was not true for most of the time I was working in the public sector. I spent my working life earning less than I could in the private sector partly because I knew there was a solid 'reliable' pension scheme. I enjoyed my job and averaged about 40 hours/week with no paid overtime. Now, as I look back, I can see that I earned less and my pension is decreasing in value. I know others are experiencing decreasing pensions, but they had larger earnings when they were working in the private sector. Change may be necessary, but it has not been thought through properly.

    Wasn't there discussion about tying the State Retirement Pension to average earnings? That's a good one to have at a time of wage stagnation. Perhaps in future they should just tie it to which ever index is lower - wages, CPI, RPI, GDP etc.

  • Comment number 89.

    #87 "Does it affect dormant pensions that I no longer pay into?"

    I don't know, but as it has the work 'dormant' they will probably say that it can just be put back into company profits and passed on to shareholders as part of another 'rule' change.

  • Comment number 90.

    Dear Plenty of Questions .. try this link for some of the answers to your questions http://www.tssa.org.uk/article-50.php3?id_article=1395

    Everyone... we face a government without mandate imposing ideologically driven changes to our lives. Each left leaning power base is being attacked in turn. For example Mr Pickles has recently ordained that Councils can no longer speak out of turn and to refrain from making comments on "contentious areas of public policy". http://www.guardian.co.uk/politics/2011/feb/11/eric-pickles-curbs-council-pr-spending .... an interesting read especially when finding out which councils will be hit worst (Liverpool top of the losers list of course and Surrey close to the bottom).

    And now confirmation of the attack on pensions. There must be a better way to deal with the "structural deficit". Even good old Ken Clarke is showing signs of shame.

    We need another election.

  • Comment number 91.

    'We need another election.'

    We should be getting one in 2015. Whoever won the election last time was never going to be thanked for having to deal with the deficit, unless you are Ed Balls.

  • Comment number 92.

    'It's harsh but a fact that anyone investing in pensions is playing a mugs game;'

    This is worrying advice to be giving out to people. Investing in pensions is the most tax efficient way of saving for your retirement. Not being able to touch the money for decades stops people from dipping into the pot whenever they feel like it to pay for new cars and holidays. The State can't afford to look after everyone in their increasingly long retirements.

  • Comment number 93.

    they have put out a new assessment because the old assessment was wrong and someone has pointed that out. They have done it on a good day to bury bad news because it is bad news for people who will, in the main, be middle class Tory voters.

    Most won't be retiring in 2027 though because outside the public sector defined benefit schemes are as rare as hen's teeth. Most in the private sector who still have DB schemes will be retiring soon.

  • Comment number 94.

    The fact is that since many of the old DB schemes were originated decades ago mortality rates have improved very considerably meaning that the schemes are not affordable. It is not the fault of employers or employees as few if any of these group realised how dramatic would be this change.

    To put it into some sort of perspective let’s do a simple calculation. Both sides pay similar contributions so say 5% each therefore a total of 10% of annual salary which we will assume is £25000 and you work for say 40 years. You will have accumulated a pension pot of £100,000. To keep it straightforward let’s ignore the effect of inflation and capital growth and assume they cancel each other out.

    The best defined benefit scheme would have paid you 40/60 of final salary i.e. £16666 pa assuming you did not take 25% as tax free cash. Let’s be very optimistic and assume prevailing interest rates were better than now so 5%. So your £100,000 pension pot will generate £5000 interest in year one and the pension provider (annuity or drawdown) will have to make up the £15666 deficit. This has to come from your pension pot so at the end of your first year as a pensioner the pot will be £83,333. Year two you will have 5% interest on this figure i.e. £4167 and the year two deficit to enable your pension to be maintained is £16666 – £4167 = £12499 so by the end of year two your £100,000 pension pot is reduced to a mere £70834. And so it goes on resulting in your pension pot being less than your annual pension after just 6 years. Ask for an inflation proof pension and the money runs out much faster!

    So in the old days when you and your employer struck a pension deal post retirement life expectancy was 3 to 7 years so no problem. Now however people are living into their 80’s and 90’s so the old defined benefits schemes are unsustainable. You can be as political as you like and try and blame the government, employers, the pension industry et al but the fact is we are living longer and most of us have known that for some time and ignored the consequences.

    We have to accept that we are all in this together and everyone has to find a solution. There are only a few solutions and these have been very well aired; higher contributions, later retirement or reduced benefits. RPI or CPI is simply part of the debate!

  • Comment number 95.

    By the way as I understand it the CPI v RPI issue applies to all pensions not just DB schemes.

  • Comment number 96.

    88. At 08:09am on 13th Feb 2011, Boilerbill wrote:

    I am not sure I understand your logic. Surely you earned say 5% less as a public sector employee because you didn't pay 5% pension contributions therefore you effectively earned the same as an equivalent private sector employee?

    By the way the difference in CPI and RPI historically is less than 1%. So the impact on annual pension increases assuming CPI of 4% is 1% of 4% i.e. 0.04% of annual pension, so hardly life threateneing!

    I live on invested capital and savings and when interest rates dropped from 5%+ to 2% my income dropped by almost 60%!

    Try surviving that sort of income reduction.

  • Comment number 97.

    People should ask themselves one question: DO THEY WANT A POVERTY-STRICKEN RETIREMENT? Most would answer NO. Therefore if people want pensions that give them a reasonable standard of living then these have to be paid for. I retired last year on an index-lined final salary scheme paying around two-thirds of my final salary. Before I retired I was paying around 12% of my salary into my pension and my employer was paying 16% = 28% of my salary. In addition, to top up my pension I was paying £20.00 each we into AVCs and my company was paying £16.00 each week. How was afforded by me? Simple. I have to forgo new cars, expensive holidays and live a basic lifestyle. For example, I am driving around in an 04-plate Skoda and only take on cheap holiday each year. At least now I have a pension of around £20,000 each year gross which keeps the wolf from the door.

  • Comment number 98.

    "RPI to CPI costs pension savers £83bn" is the title of Robert Peston's blog.

    Post 46 @ 18:29 on 12 Feb 2011 - 'SuspiciousDavid'. Recommended. This post, in my view, sums up the way pensions, for ordinary people, are run. In addition, the cash flow from the above, subsidises the 'protected pensions'.

  • Comment number 99.

    #83. marchino wrote:
    "I don't understand this at all...
    I thought DB pensions were based on final salary (e.g. 2/3 of final salary)."

    and others #86. Questionsaplenty2 and #57. opaqueentity wrote:

    Guys generally the defined benefit pension you thought you had goes up with inflation and does not remain at say 2/3rds of final salary.

    Behind every pension (except government employee pensions) is an investment fund that pays your pension. The Trustees of this fund have to ensure that they can met the obligations of the fund - not just to pay for the defined benefit on retirement but for as long as the pensioner (and his/her widow/widower - in many cases) lives.

    Are you with me - there is a pot of money which they invest? Out of which they pay the pension and its inflationary increase. Now consider the change from a higher index of inflation to a lower one. (RPI to CPI). And further consider how this helps out the pension fund to reduce its apparent deficit / increase its apparent surplus.

    Most pension funds are showing a thumping deficit because of the Bank of England's idiotic interest rate policy. What this change of index means is that the deficit appears reduced - because the pension fund will pay its pensioners less in future years. In some cases the fund will show an apparent surplus and this surplus will often go back to the employer.

    You are having your pension stolen by George Osborne to prop up his Tory friends and donors in the City - are you surprised? Your voted, like a turkey for Christmas, so don't be surprised you are being stuffed! (You had no choice though as the Labour Party would have done the same thing as they are Tory too - being just as desperately enthral to the City of London.)

  • Comment number 100.

    If any index-linking of pension uplifts is inaccurate and doesn't reflect the real effects of inflation on pension value what is their purpose? CPI most certainly doesn't reflect real inflation effects, and government ministers can go blue in the face repeating the mantra that it does but it will not alter the reality. CPI is less fit for purpose than RPI. At least they should have the guts to admit their move is purely and simply all about cost savings and permanent reduction in pension values. Mind you, I've not heard too much of the Labour response to all this. Would they intend making the same decision? Perhaps they too should be upfront and tell us where they stand on the issue too.

 

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