Cpi - rpi Final Salary Schemes

nearleyretired

The way I read the government's proposals for company final salary schemes - one of which I am now a pensioner of - will be able to reduce the yearly increments to CPI rather than RPI.

This seems unfair to current pensioners who have no chance of making up the difference and as e.g. I understand it CPI does not take account of Council tax costs. Estimates I have seen put the difference over 10 years as much as 10 percent.

Does anyone know

• if will apply to current pensioners or to future pensioners of the schemes.
• when and how it will be phased in
• I ask this because my scheme did not increase pensions in April this year because for some reason it uses the RPI from the previous September and the RPI in September 2009 was negative. RPI is now approx 5% and CPI 3% - but last year in Sept CPI was 1%.

If anyone knows of a petition or challenge against this I would be interested to know.

hugheskevi

Dept. for Work and Pensions put out a clarifying statement, available here

They include some examples which may help:

These examples illustrate how these changes could apply to future calculations of the revaluation and indexation applying to pension rights, if a pension scheme adopted the statutory minimum approach. They would not affect pension payments already received. They do not deal with issues arising from contracting out from the State Second Pension. The detailed rules on revaluation and indexation vary between pension schemes and can be higher than the minimum. They also depend on when the pensionable service took place. Other factors may affect an individual’s pension entitlement depending on that scheme’s rules.

• A is a pensioner member of a pension scheme. His pension has been in payment for three years, and he has been receiving increases related to RPI. From 2011 his future increases will be calculated in relation to CPI. This does not affect his previous increases.
• B is a deferred member of a pension scheme. She left pensionable service five years ago. When she reaches normal pension age, her rights will be revalued in relation to RPI in respect of the first five years after she left pensionable service, and then in relation to CPI until normal pension age. Once her pension has been put into payment, she will receive annual increases calculated in relation to CPI.
• C is an active member of a pension scheme. He is continuing to accrue new rights. If he continues in pensionable service until he reaches normal pension age in (for example) 2015, revaluation will not apply. Once his pension is in payment, he will receive annual increases calculated in relation to CPI.
• D is an active member of a pension scheme. She will leave pensionable service in 2013, and will reach her normal pension age in 2020 and begin to receive her pension at that time. From 2013 to 2020 her rights will be revalued in relation to CPI. Once her pension is put into payment, she will receive annual increases calculated in relation to CPI.

MikeJones_2

nearleyretired wrote: »

If anyone knows of a petition or challenge against this I would be interested to know.

You could start your own. Here's an example of a recent pension related proposal by a member of the public on www.yourfreedom.hmg.gov.uk - a legitimate forum where people may express opinion and propose changes to legislation or, propose new laws. See:

Pension transfer values should be protected (HM Government - Your Freedom)


A cautionary note though, is that the hmg.gov.uk website may experience slow page loads (due to technical issues caused by the volume of visitors).

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

LindsayO

I don't think there is much we can actually do about this though, short of binging down the government before it enacts this change. They have the power to do this and even if every single pensioner that is effected and every single employee that will be effected objects, I think they would just ignore us

StevieJ

It only effects the statutory minimum.

The proposed changes will affect how many deferred pensions are revalued in future, and how pensions in payment are increased. The changes apply to defined benefit rights in occupational pension schemes, and certain defined contribution rights in occupational pension schemes. The changes will affect the statutory minimum requirement for revaluation and indexation; occupational pension schemes will still have the freedom to pay more than the statutory minimum.

peterbaker

This has all the makings of a national scandal.

Please, someone, tell me that as a long time deferred member of what up until now I have told allcomers is my "best" (my one and only now) final salary pension, my transferable pension fund has not just been significantly reduced?

I left 22 years ago after 10 years pensionable service. By coincidence, I think I read somewhere that 22 years is how long RPI has been in use. Last time I checked, the fund for this "first quarter" of my working career was approaching a very useful £200K.

From the examples which hugheskevi kindly provided above, I am in category B.

I read from example B that some form of recalculation of my entitlement will now occur based on the difference between RPI and CPI for the last 17 years out my 22 as a deferred member.

That is frightening.

Can anyone hazard a guess at what it really means?

I am worried that when I next ask for my transfer value I'll get told yes it has gone down 15% (or worse) due to RPI>CPI recalculations.

Am I correct?

StevieJ

peterbaker wrote: »

Can anyone hazard a guess at what it really means?

I am worried that when I next ask for my transfer value I'll get told yes it has gone down 15% (or worse) due to RPI>CPI recalculations.

Am I correct?

It seems to say that your current pot is OK and adjusted for RPI but your future adjustments would be at CPI, although your pension fund could still use RPI if they choose. The only reason they use 5 years is because the example left that pensionable employment 5 years ago.

her rights will be revalued in relation to RPI in respect of the first five years after she left pensionable service, and then in relation to CPI until normal pension age

Sapphire

StevieJ wrote: »

It seems to say that your current pot is OK and adjusted for RPI but your future adjustments would be at CPI, although your pension fund could still use RPI if they choose. The only reason they use 5 years is because the example left that pensionable employment 5 years ago.

If your written contract with a private company states that the pension is calculated according to RPI (not CPI) both now and in the future, then surely it would be illegal to suddenly change it to CPI without the consent of the employee?

hugheskevi

peterbaker wrote: »

Please, someone, tell me that as a long time deferred member of what up until now I have told allcomers is my "best" (my one and only now) final salary pension, my transferable pension fund has not just been significantly reduced?

It depends how you think about it.

One way is to think that you have accrued rights that are indexed by RPI, these are now being changed to CPI and you are worse off.

Another way is to say that your deferred rights were worth £x per year in retirement when you left, and up to today they have been revalued by RPI, so they are currently worth £y. In the future, y will be uprated in line with CPI - you are no worse off today, but will be worse off in the future (ie your accrued rights are unaffected, but future rights are reduced).

Not that I say which is the correct way of thinking, just illustrating it!

peterbaker wrote: »

I read from example B that some form of recalculation of my entitlement will now occur based on the difference between RPI and CPI for the last 17 years out my 22 as a deferred member.

That is frightening.

I am worried that when I next ask for my transfer value I'll get told yes it has gone down 15% (or worse) due to RPI>CPI recalculations.
Can anyone hazard a guess at what it really means?

Am I correct?

No. Assuming you are one of the people affeceted (ie it depends on your scheme rules) the amount of pension you were due is not affected. For example, if your pension due is currently £10,000 per year once in retirement, that is unchanged.

What might change is what that will increase by in the future. Rather than increase by RPI, it might now increase by CPI.

CPI is about 0.75% p/a lower than RPI, although the difference forecast by the Office for Budgetary Responsibility between now and 2015 is a bit more than that.

So if you have 10 years to go to retirement, that £10,000 per year pension would increase from its current value to £13,484 per year under RPI uprating, but under CPI uprating will only increase to £12,226. So that is a loss of just under 10% compared to what you would have been expecting to receive at the point of retirement [assume forecasts by OBR, then CPI of 2% and RPI of 2.75% thereafter]

Once you take the pension, it will also increase by about 0.75% less per year than it otherwise would have increased by.

StevieJ

Sapphire wrote: »

If your written contract with a private company states that the pension is calculated according to RPI (not CPI) both now and in the future, then surely it would be illegal to suddenly change it to CPI without the consent of the employee?

That is one for new legislation or the courts, as far as I am aware my own pension fund describe RPI upratings as a concession not a legal right i.e. they can refuse to uprate if you break the law (I don't know how true that is).

artha

StevieJ wrote: »

That is one for new legislation or the courts, as far as I am aware my own pension fund describe RPI upratings as a concession not a legal right i.e. they can refuse to uprate if you break the law (I don't know how true that is).

Although my own pension fund cites RPI when making annual announcements on changes I've looked at the scheme rules and see that it is only GMP that is linked to RPI. Everything else is ex-gratia in relation to inflation