There is more than one way to steal money.
The government is thinking about using an accounting trick to make people poorer.
More than ten million people with pensions linked to their final salary face losing tens of thousands of pounds.
Proposals to change the way annual pension increases are calculated will leave people £30,000 worse off on average. It could even be more.
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 (RPI). 75 percent of Britain’s 5,500 private sector schemes - with more than ten million members - still use RPI to uprate pensions.
RPI rises more quickly than the CPI. So if your annual pension rise is based on the RPI, you will get more; if it is based on the CPI, you will get less.
The government doesn’t like the RPI measure. It consistently shows a higher rate of inflation than they like to pretend is the case.
The Office for National Statistics has set up a consultation on “reforms” that could see workplace pensions and other benefits rise more slowly each year.
The planned changes would come into force by 2025. They would mean the annual measured rate of inflation would be lower, on average, by 1 percentage point a year, according to the consultation document. Though the difference is around 1% a year; after ten years, that would come to more than 10 percent less, because it is compounded.
Investment Insight, an asset manager, has calculated the cost of linking defined benefit pension increases to CPIH.
“Investment Insight’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 carried out separate calculations.
It said someone 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 cut to around £425,000. “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.
The move away from RPI was signaled in chancellor Rishi Sunak’s budget in March this year, having first been advanced a decade ago. After the budget, the GMB union said, “These proposals will be a hammer blow for millions of working people and pensioners.
“This might be presented as a technical issue. But if this goes through it will end up costing millions of workers and pensioners their full, hard-earned compensation.
“Turning RPI into a zombified version of the flawed and controversial CPIH measure will drive down many people’s standard of living.”
Patrick Harrington, general secretary of Solidarity said:
"Governments are sly. They steal in ways that people won't notice.
"Here a simple accountancy switch which most would not notice will deprive working people of a significant part of their pension.
"They are also not proposing to start it till 2025."
That makes it easy for people to miss. It's important that people are wise to their tricks and reject it.
Our union, along with others, will be campaigning against this change."