Belfast Telegraph

Home News

Private pension payouts 'lower'

Millions of people with private-sector pensions face lower payouts after the Government announced plans to change the rate at which they increase each year.

Pensions Minister Steve Webb has called for the schemes to rise each year in line with inflation as measured by the consumer prices index (CPI), rather than the retail prices index (RPI).

The move is likely to cost workers hundreds of pounds a year over the course of their retirement, as CPI is generally lower than RPI.

Accountants KPMG said the change could reduce UK private sector pension liabilities by 10%, or about £100 billion. It is expected to be introduced next year, bringing the inflation measure used for private sector pensions in line with public sector ones.

The Government also recently announced that benefits and the state pension would rise in line with CPI rather than RPI in future. CPI is considered to be a more appropriate measure of inflation for pensioners, as it excludes housing costs, such as mortgage interest, which retired people are less likely to pay.

The Government also announced that benefits paid by pensions safety net the Pension Protection Fund and the Financial Assistance Scheme would also rise in line with CPI rather than RPI in future. In a written statement on Thursday, Mr Webb said: "The Government believes the CPI provides a more appropriate measure of pension recipients' inflation experiences and is also consistent with the measure of inflation used by the Bank of England.

"We believe, therefore, it is right to use the same index in determining increases for all occupational pensions and payments made by the Pension Protection Fund and Financial Assistance Scheme."

The move is good news for beleaguered final salary schemes, as the lower rate at which pensions have to increase each year will reduce the liabilities they face.

Joanne Segars, chief executive of the National Association of Pension Funds, said: "The Government moved state and public sector schemes from RPI to CPI in the Emergency Budget, and it has acted swiftly to apply this reform to the rest of the pensions landscape. By applying the same index measure to private sector pensions, trustees and fund managers now have more flexibility."

But shadow work and pensions secretary Yvette Cooper said: "Many pensioners will feel betrayed by the Government. During the election both parties promised to help pensioners.Now, out of the blue, they're cutting the value of private pensions that people have worked hard for and depend on."


From Belfast Telegraph