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RPI to CPI Early Day Motion 1032
Comments
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Enhanced detail with RPI and CPI yearly pension figures.
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
RPI Pen = Pension after increase per year at RPI
CPI Pen = Pension after increase per year at CPI
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
RPI Pen
CPI pen
2011---- £3
£30
1
£2,092
£2,062
2015---- £8
£323
5
£2,364
£2,263
2020---- £18
£1,150
10
£2,754
£2,541
2025---- £29
£2,621
15
£3,208
£2,854
2030---- £44
£4,903
20
£3,737
£3,206
2035---- £63
£8,201
25
£4,353
£3,601
2040---- £86
£12,761
30
£5,071
£4,044
As above for a £3,640 pension
Which the Governments says is average occupational pension of £70 per week
Year---- Pr Mth-- !!! loss
Yrs
RPI Pen
CPI pen
2011---- £5
£55
1
£3,807
£3,753
2015---- £15
£588
5
£4,302
£4,118
2020---- £32
£2,093
10
£5,011
£4,625
2025---- £54
£4,770
15
£5,838
£5,195
2030---- £80
£8,924
20
£6,801
£5,835
2035---- £114---- £14,926
25
£7,922
£6,553
2040---- £156---- £23,226
30
£9,229
£7,361
As above for a £5,000 pension
Year---- Pr Mth-- !!! loss
Yrs
RPI Pen
CPI pen
2011---- £6
£75
1
£5,230
£5,155
2015---- £21
£807
5
£5,909
£5,657
2020---- £44
£2,875
10
£6,884
£6,354
2025---- £74
£6,552
15
£8,019
£7,136
2030---- £111---- £12,258
20
£9,341
£8,015
2035---- £157---- £20,503
25
£10,882
£9,002
2040---- £214---- £31,903
30
£12,677
£10,111
As above for a £10,000 pension
Year---- Pr Mth-- !!! loss
Yrs
RPI Pen
CPI pen
2011---- £13
£150
1
£10,460
£10,310
2015---- £42
£1,614
5
£11,819
£11,314
2020---- £88
£5,751
10
£13,768
£12,707
2025---- £147---- £13,104
15
£16,038
£14,272
2030---- £221---- £24,516
20
£18,683
£16,030
2035---- £313---- £41,006
25
£21,764
£18,004
2040---- £428---- £63,806
30
£25,353
£20,221
As above for a £15,000 pension
Year---- Pr Mth-- !!! loss
Yrs
RPI Pen
CPI pen
2011---- £19
£225
1
£15,690
£15,465
2015---- £63
£2,421
5
£17,728
£16,971
2020---- £133---- £8,626
10
£20,651
£19,061
2025---- £221---- £19,656
15
£24,057
£21,408
2030---- £332---- £36,773
20
£28,024
£24,045
2035---- £470---- £61,509-
25
£32,646
£27,006
2040---- £642---- £95,710
30
£38,030
£30,332
As above for a £20,000 pension
Year---- Pr Mth-- !!! loss
Yrs
RPI Pen
CPI pen
2011---- £25
£300
1
£20,920
£20,620
2015---- £84
£3,228
5
£23,637
£22,628
2020---- £177---- £11,502
10
£27,535
£25,414
2025---- £294---- £26,208
15
£32,076
£28,544
2030---- £442---- £49,031
20
£37,366
£32,060
2035---- £627---- £82,012
25
£43,528
£36,008
2040---- £855---- £127,613
30
£50,706
£40,4420 -
What will someone aged 95 be spending all their pension (plus state pension) on ?
Your use of 1 year's "actual" and 19/29 years "average" is inconsistent. For anyone starting a pension in 2012 - the reduction will be lower (assuming you calc on 20 years average).
In the RPI - do you know what exactly is meant by 'housing costs' and how would this affect someone in later life, say 80+ ? Presumably the vast majority will not be affected by mortgage interest, house purchase costs, housing deprec, TV lience costs - most of which are in RPI.
nb - why not show the figures for 40/45 years also to include those who public servants allowed to retire at the ridiculously early age of 50/55?0 -
Normally I might object to such a remark, but in this case I applaud you.Old_Slaphead wrote: »nb - why not show the figures for 40/45 years also to include those who public servants allowed to retire at the ridiculously early age of 50/55?
This should keep Ripoff busy for a couple of hours producing these wonderful, meaningless tables. Please keep the suggestions coming!
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Old_Slaphead wrote: »What will someone aged 95 be spending all their pension (plus state pension) on ?
Your use of 1 year's "actual" and 19/29 years "average" is inconsistent. For anyone starting a pension in 2012 - the reduction will be lower (assuming you calc on 20 years average).
In the RPI - do you know what exactly is meant by 'housing costs' and how would this affect someone in later life, say 80+ ? Presumably the vast majority will not be affected by mortgage interest, house purchase costs, housing deprec, TV lience costs - most of which are in RPI.
nb - why not show the figures for 40/45 years also to include those who public servants allowed to retire at the ridiculously early age of 50/55?
Slaphead, you miss understand the basis of the figures I think.
The first year is a given, the following years are not averages, they are calculated figures based on the criteria shown. Averages assumes you take the increase and average it up, this is not the case here. These figures are accurate calculations going forward, they are actuals based on the criteria I have given.
You are also assuming that this is for people retiring at 65, it is not. It gives the figures for anyone who retires early and then onwards to give the broadest spectrum. This allows people to see where they fit into the losses.
Yes I do know what is meant by housing costs and the biggest ommision from CPI is the fact it does not include Council Tax, even 80 year olds pay council tax. So they still need an inflation proof income to cover council tax, food, heating, care costs, lighting and transport there is no getting away from these costs. This change will impoverish pensioners far greater than you are being led to believe by the Government. A 1% variance is not just a small amount of loss as the Government would like you to think, it is thousands of pounds as the figures show and I have only used a 0.75% variance.
However, by using the criteria I have, it is only showing the effect for the formula effect of RPI and CPI, (RPI uses Arithmetic and CPI uses Geometric means) if the housing ommisions are also included then the figures are actually far worse, these figures are the BEST scenario, the Government say they are going to include housing figures , in about 2 years so next years figures will actually be worse than I have shown.
The Government have acknowledged that the variance will be 1%, so I have used 0.75% to be on the right side so to speak. The ONS have said it will be 1.18% over the next 5 years so as you will see from this assuming RPI inflation is 3.1% over the time period the loss would have been even greater if I had used either 1% or 1.18% variance.
These figures are actually modest and could inreality turnout to be far worse. It's the cummulative and compounding effect of this change that causes the vast losses.
Anyone can retire at 55 onwards public or private, especially on ill health grounds so anyone who took early retirement, for what ever reason, and the widows and orphans of pensioners will be drastically affected by this change.0 -
Hi - I am just catching up on all these threads ... re the change from RPI to CPI.
I have also gone back to read this paragraph from the BT pension Trustees dated nov 2010 to section A& B deferred members :-
"The Trustee’s duty is to administer the Scheme in accordance with the Rules and the law as it relateschange in the Rules of the Scheme."
to pensions. Having taken legal advice, the Trustee has been advised that on the basis of the
Government’s stated intention, your pension will be indexed to CPI with effect from April 2011. The
Trustee has no choice in this. The change is brought about by the Government. There has been no
Correct me if I am wrong - but did I not read in a earlier post that the minster said he was not forcing companies to change to CPI - it was a matter for the companies ? or did I dream that ?? and also it says no change to Rules of the Scheme.
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Correct me if I am wrong - but did I not read in a earlier post that the minster said he was not forcing companies to change to CPI - it was a matter for the companies ? or did I dream that ?? and also it says no change to Rules of the Scheme.
You are quite right the Minister Steve Webb says and I quote "it is important to stress that the change for occupational pensions only affects the requirement for statutory minimum increases so schemes may continue to make more generous increases if they wish." end quote.
BT or ANY OTHER PENSION SCHEME can pay at RPI if they so wish. CPI is the statutory minimum but there could be a problem with the actual rules as they stand, the lawyers will have to advise on that.
BT could change the rules to keep the status quo but there again BT saves £2.9bn and the shareholders gain at the pensioners expense, so what do you think they will do?
For clarity, the previous tables I have produced are acurate figures based on the criteria shown and are the variables that BT used to obtain the £2.9bn saving, they are therefore not at all meaningless as someone has suggested.0 -
You are quite right the Minister Steve Webb says and I quote "it is important to stress that the change for occupational pensions only affects the requirement for statutory minimum increases so schemes may continue to make more generous increases if they wish." end quote.
BT or ANY OTHER PENSION SCHEME can pay at RPI if they so wish. CPI is the statutory minimum but there could be a problem with the actual rules as they stand, the lawyers will have to advise on that.
Not, as I understand it, for sections A/B which is those sections covered in the letter from which phileb quoted.
Sections A/B increases are governed by the government's Pension Increase Order - the same Order that instructs civil service pension payments - neither the trustees nor BT have any choice on this.
It's only section C where there is any leeway, depending on whether or not the government enact any legislation allowing companies to change the indexing used if they wish - that is the issue where Steve Webb has indicated that they don't have plans so do so but that it is out for consultation before any final decision is made.
You have to remember that BT has three sections to the pension scheme, each of which have different rules. Sections A/B are closely tied to the civil service pensions because the members of those schemes effectively started out as civil servants prior to BT being privatised. Section C only covers members who joined after 1984 or have switched from sections A/B.0 -
Not, as I understand it, for sections A/B which is those sections covered in the letter from which phileb quoted.
Sections A/B increases are governed by the government's Pension Increase Order - the same Order that instructs civil service pension payments - neither the trustees nor BT have any choice on this.
It's only section C where there is any leeway, depending on whether or not the government enact any legislation allowing companies to change the indexing used if they wish - that is the issue where Steve Webb has indicated that they don't have plans so do so but that it is out for consultation before any final decision is made.
You have to remember that BT has three sections to the pension scheme, each of which have different rules. Sections A/B are closely tied to the civil service pensions because the members of those schemes effectively started out as civil servants prior to BT being privatised. Section C only covers members who joined after 1984 or have switched from sections A/B.
You are correct Chris_m but BT/Trustees could change the rules to stay with RPI. There is nothing to stop them doing that unless Steve Webb goes against what he said on the 8th Dec in Parliament that he would not legislate for a change to CPI for ALL private schemes, hence the consultation and he goes back on that.0 -
Chris-m said:
"Sections A/B increases are governed by the government's Pension Increase Order - the same Order that instructs civil service pension payments - neither the trustees nor BT have any choice on this."
Chris, for what it's worth, I'm with Ripoff on this one. BT's scheme appears to relate to what the government says is a minimum, so surely BT should treat it as that - a minmum uprating index.
It's a bit like a retailer claiming that they are legally obliged to sell an item at the RRP price, when in reality they are free to decide.
It's the fact that BT (and the trustees for goodness sake) are claiming that they must apply the CPI figure as an absolute rather than as a minimum that sticks in my craw. It would be another thing if they simply said 'OK, the new minimum is CPI and we could stick with RPI if we wanted to but guess what, we're not going to'.
Then again, as I've said before, I've not actually seen the specific wording of the scheme rules that BT and the trustees are interpreting in the way they are. Until I do, it's difficult to argue the point conclusively.
So I ask again - can anyone point to the actual wording at issue here (and I mean in the definitive documents - not the various booklets that have been issued from time to time).
Good luck all.0 -
BT's scheme appears to relate to what the government says is a minimum, so surely BT should treat it as that - a minmum uprating index.
BT's scheme relates to the legislation which governs what Additional State Pension is uprated by.
This is separate to the statutory minimum indexation and revaluation requirements which defined benefit schemes must satisfy.It's the fact that BT (and the trustees for goodness sake) are claiming that they must apply the CPI figure
The job of the trustees is to run the scheme in accordance with scheme rules. Legal advice (taken by BT) appears to have deemed that those rules state that the scheme will be uprated in line with CPI.
BT, as the sponsoring employer, could choose to apply RPI (amending scheme rules accordingly) but the trustees alone cannot.can anyone point to the actual wording at issue here
See page 22 of the document here
There is a thread here which discusses the issue.0
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