RPI to CPI Early Day Motion 1032

Ripoff_2

Goldwing1 wrote: »

Keep at those Conservative MP's.

My MP (Damian Green) requested a briefing from the House of Commons library. That arrived last Friday. I understand is now reviewing it and will hopefully reply later next week.

While it may not result in another signature on the EDM it may result in some private questions that could have a useful effect - or perhaps not. All we can do is try.

The documents you are refering to are SN/BT/2117 and SN/BT 5649


In the June 2010 budget the Chancellor George Osborne announced that CPI would be used for indexation stating that CPI provided a more appropriate measure of benefit and pension recipients inflation experiences than RPI, because it excludes the majority of housing costs faced by homeowners.

It will be interesting if your MP picks this out Page 29 of SN/BT/2117

On 19th August 2008 the then Shadow Chancellor George Osborne published a document which argued that in April 2008, the Guarantee Credit was uprated at a rate which was lower than the rate of inflation actually experienced by pensioner households: "pensioner inflation is now considerably higher than CPI inflation because pensioners spend a much higher percentage of their income on high-inflation goods, like heating, light and food." (from Conservative Party, ‘An Unfair Britain: Why Labour have failed on fairness’, 19th August 2008).

So what has changed from 2008 to 2010 where CPI is concerned, the measure of both RPI and CPI is exactly the same, but in opposition it’s wrong to use CPI but in Government it’s right to use CPI? but as far as I am aware in 2010 pensioners still spend a higher percentage of their income on high-inflation goods, like heating, light and fuel unless the now chancellor can prove differently.

So yes you are right keep badgering those Tory MP's and point this out to them.

Interested_Taxpayer

Given Vince Cable's reported "nuclear option" we need to pursuade more Lib Dem MPs to sign up for the EDM and to put pressure on their ministerial colleagues. This wrong must be put right.
My labour MP is very supportive and has signed up to the EDM.
I will now write to Nick Clegg reminding him of Steve Webb's assurances in respect of Public Sector Pensions before the General election; "a pension promise made is a pension promise kept. Therefore, we would not make any changes to pension rights that have been bult up. I have confimed that I regard index-linked rights as protected."
I wrote to Steve Webb on 20 July 2010 about this and did not get a reply. Very poor.
Come on. Keep up the pressure!!!:mad:

Goldwing1

Well,
I've received a copy of the briefing from Damian Green''s secretary. There are lots of words from the Pensions Minister but one key statement from the UK Statistics Authority. My reply to Mr Geen is as follows;

"It is a very wordy document that appears to contain only one reference to a professional body. The text on page three of the briefing being;
On 6 October 2010, the UK Statistics Authority9 replied, saying the CPI should become the primary measure of consumer price inflation, once the inclusion in the index of owner occupiers‟ housing costs had been achieved:
We continue to regard both the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) as important measures of consumer price inflation. We believe that the CPI should become the primary measure of consumer price inflation but only when the inclusion in the index of owner occupiers' housing costs has been achieved. We note that the ONS has an active research and development programme for the CPI and the RPI, and are preparing for wider user engagement on a forward work programme, starting this autumn.10

From this it would appear that the Government’s own advisors are stating that CPI is not currently fit for purpose and, by default, support the early day motion. On that basis I would urge Mr Green to consider supporting the early day motion based on the advice of the Governments own advisors."

Interested_Taxpayer

Thanks Goldwing1
I will use this in my letter to Nick Clegg. Let's see if I get a reply.
Happy Christmas all and keep the pressure up in the New Year.
Together we can sort this.

Ripoff_2

I have been doing some calculations on this to put it into perspective. Basing the difference between RPI to CPI at 0.75% and an inflation rate on average of 3.1% RPI for the next 30yrs and CPI at .75% less then RPI. The figures are quite astounding.

a £2000 pension after 20 years the loss is £4,903, loss £44 per mth, after 30 years the loss is £12,761, loss £86 per mth.
a £6700 pension after 20 years the loss is £16,425, loss £148 per mth, after 30 years the loss is £42,750, loss £287 per mth.
a £10000 pension after 20 years the loss is £24,516, loss £221 per mth, after 30 years the loss is £63,806, loss £428 per mth.

So here I am assuming that over the period the inflation stays on average at 3.1%RPI and 2.35%CPI. If the gap between RPI and CPI reduces then the loss will reduce however if the inflation rate goes up the loss is greater. For people on the higher pensions, then their loss will be far greater but even people on modest pensions will be effected greatly. These figures are valid for Private, public and state pensions based on using CPI.

Just to clarify the loss per month figure, it's the RPI monthly figure minus the CPI monthly figure, ie. the difference per month that is lost.

Old_Slaphead

Ripoff wrote: »

a £2000 pension after 20 years the loss is £4,903, loss £44 per mth, after 30 years the loss is £12,761, loss £86 per mth.

So here I am assuming that over the period the inflation stays on average at 3.1%RPI and 2.35%CPI.

Just done calc based on your figures and I come to - for £2000 -
20 years total loss is £3965 and £38.55pm at end of 20 yrs,
30 years total loss is £10790 and £77pm at end of 30 yrs.

Of course the average monthly reduction will be half of these figures.

Ripoff_2

Old_Slaphead wrote: »

Just done calc based on your figures and I come to - for £2000 -
20 years total loss is £3965 and £38.55pm at end of 20 yrs,
30 years total loss is £10790 and £77pm at end of 30 yrs.

Of course the average monthly reduction will be half of these figures.

My figures include the 1.5% difference for 2011 (i.e RPI 4.6% - CPI 3.1% as of sept = 1.5% gap )which will be the known case for next year, hence why my figures are higher than yours. It is the 1.5% for year one then 0.75% for the following years. You really need to include the 1.5% gap because this is a given for next year.

Could you explain the "Of course the average monthly reduction will be half of these figures" please? Thanks

hugheskevi

My figures include the 1.5% difference for 2011 (i.e RPI 4.6% - CPI 3.1% as of sept = 1.5% gap )which will be the known case for next year, hence why my figures are higher than yours. It is the 1.5% for year one then 0.75% for the following years. You really need to include the 1.5% gap because this is a given for next year.

If you wish to be that precise, you should use the Office for Budgetary Responsibility forecasts, which show a bigger difference persisting between RPI and CPI over the forecast period (to 2016Q1) - the link is here, click on the Economy spreadsheet.

0.75% is a reasonable assumption to use beyond the forecast period.

These figures are valid for Private, public and state pensions based on using CPI.

They are not valid for Basic State Pension, which is linked to the higher of earnings, CPI and 2.5% in the future.

Additional State Pension is also a bit different to public service pensions and private DB pensions, as it is increased in line with earnings prior to payment (a deferred public service pension or private DB pension would almost certainly increase in line with prices, possibly with a cap).

Old_Slaphead

Ripoff wrote: »

Could you explain the "Of course the average monthly reduction will be half of these figures" please? Thanks

Putting it crudely in year 1 there's zero difference and in year 20 there's say £40pw difference therefore the average will be £20pw over the 20 years.

I would also contend that for many the increases will probably be taxable so the actual cash loss will be lower.

Ripoff_2

For anyone who is still in any doubt as to the true effect of the RPI to CPI change and believes the Government assertion that 1% difference is not that much of an issue. Then I have shown below the actual values of the loss incurred with the RPI to CPI change for £2000, £3640, £5,000, £10,000, £15,000 and £20,000 gross pensions over 30 years.

This is based on an average RPI at 3.1% and a RPI to CPI formula effect of 0.75%, with the first year set at 1.5% as this is a known value because of the proposed change by the government in April 2011. I believe these values are a reasonable assumption but they of course may be less, the gap may reduce, but the effect will be the same, a loss that increases with time.
You can clearly see from these figures the exponential effect of this change. The pensioner’s loss is greater as time increases. Should inflation be greater than 3.1% on average over the 30-year period and the formula gap stay around the 1% level, then the losses will be even greater.

This cumulative and compounding effect will be devastating to the pension received later in life.

Key for headings.
Year = Year from 2011 onwards
Pr Mth = Actual Loss per mth in £'s
!!! Loss = Cumulative £'s Loss over the years
Yrs = Number of years to give the loss

The figures shown have been modelled using Excel and are therefore true values based on the criteria shown above, they are actual losses that will be incurred based on the assumptions given. They exclude allowances for Tax and are Gross values.

This is for a £2,000 pension
Year---- Pr Mth-- !!! loss

---

Yrs
2011---- £3

---

£30

---

1
2015---- £8

---

£323

---

5
2020---- £18

---

£1,150

---

10
2025---- £29

---

£2,621

---

15
2030---- £44

---

£4,903

---

20
2035---- £63

---

£8,201

---

25
2040---- £86

---

£12,761

---

30

As above for a £3,640 pension
Which the Governments says is average occupational pension of £70 per week
Year---- Pr Mth-- !!! loss

---

Yrs
2011---- £5

---

£55

---

1
2015---- £15

---

£588

---

5
2020---- £32

---

£2,093

---

10
2025---- £54

---

£4,770

---

15
2030---- £80

---

£8,924

---

20
2035---- £114---- £14,926

---

25
2040---- £156---- £23,226

---

30

As above for a £5,000 pension
Year---- Pr Mth-- !!! loss

---

Yrs
2011---- £6

---

£75

---

1
2015---- £21

---

£807

---

5
2020---- £44

---

£2,875

---

10
2025---- £74

---

£6,552

---

15
2030---- £111---- £12,258

---

20
2035---- £157---- £20,503

---

25
2040---- £214---- £31,903

---

30
　
As above for a £10,000 pension
Year---- Pr Mth-- !!! loss

---

Yrs
2011---- £13

---

£150

---

1
2015---- £42

---

£1,614

---

5
2020---- £88

---

£5,751

---

10
2025---- £147---- £13,104

---

15
2030---- £221---- £24,516

---

20
2035---- £313---- £41,006

---

25
2040---- £428---- £63,806

---

30

As above for a £15,000 pension
Year---- Pr Mth-- !!! loss

---

Yrs
2011---- £19

---

£225

---

1
2015---- £63

---

£2,421

---

5
2020---- £133---- £8,626

---

10
2025---- £221---- £19,656

---

15
2030---- £332---- £36,773

---

20
2035---- £470---- £61,509-

---

25
2040---- £642---- £95,710

---

30

As above for a £20,000 pension
Year---- Pr Mth-- !!! loss

---

Yrs
2011---- £25

---

£300

---

1
2015---- £84

---

£3,228

---

5
2020---- £177---- £11,502

---

10
2025---- £294---- £26,208

---

15
2030---- £442---- £49,031

---

20
2035---- £627---- £82,012

---

25
2040---- £855---- £127,613

---

30