EDM1629: Public Sector Pensions - switch from CPI back to RPI

Wolstan_Dixie

Actually, I see reading the Explanatory Memorandum to

THE PENSIONS INCREASE (REVIEW) ORDER 2011

4. Legislative Context

4.1 Sections 59 and 59A of the Social Security Pensions Act 1975 provide that
the Minister for the Civil Service shall, by order, provide that the annual
rate of an official pension may be increased by the same percentage as that
specified in the annual direction given by the Secretary of State for Work
and Pensions pursuant to section 151 of the Social Security Administration
Act 1992. This enabling power was transferred to HM Treasury by virtue
of the Transfer of Functions (Minister for the Civil Service and Treasury)
Order 1981 (S.I. 1981/1670).


and

7.2 The level of increase is equal to the percentage specified by the Secretary
of State for Work and Pensions for the increase of additional pensions in
long-term benefits (including State Second Pensions) in the annual
direction made under section 151 of the Social Security Administration
Act 1992. This increase is equal to the percentage rise in the Consumer
Price Index (CPI) in the twelve months to the preceding September. Since
1987 the increase of official pensions has taken effect from the first

Is this not a link? My only mistake was that it is to SERPS and not to the basic state pension.

I still think it is a betrayal that we are on CPI whilst the state pensioners are on RPI this April.

RichandJ

Wolstan_Dixie wrote: »

Thats OK - I can take robustness.

In that case what is the statutory basis for using CPI for the LGPS?

The Scheme Rules which will (probably) refer to increases being in accordance with Section 3 of Pension Schemes Act 1993. This legislation refers to a Statutory Instrument made each year by the Pensions Minister. This SI sets out the minimum percentage by which occupational schemes must increase deferred pensions & pensions in payment. Some schemes, however, have RPI hard coded in their Rules. LGPS does not.

JamesU

Wolstan_Dixie wrote: »

In that case what is the statutory basis for using CPI for the LGPS?

Wolstan Dixie, Further to what RichardJ mentioned, the manner in which the Government implemented this was as follows:

(i) Budget June 2010, page 34:

1.106 The Government will use the CPI for the price indexation of
benefits and tax credits from April 2011. The CPI provides a more appropriate measure of benefit and pension recipients’ inflation experiences than RPI, because it excludes the majority of housing costs faced by homeowners (low income households are subsidised separately through Housing Benefit, and the majority of pensioners own their home outright), and differences in calculation mean it may be considered a better representation of the way consumers change their consumption patterns in response to price changes. This will also ensure consistency with the measure of inflation used by the Bank of England. This change will also apply to public service pensions through the statutory link to the indexation of the Second State Pension. The Government is also reviewing how the CPI can be used for the indexation of taxes and duties while protecting revenues.

http://www.hm-treasury.gov.uk/d/junebudget_complete.pdf

And the Government managed to switch public sector pensions from RPI to CPI to the financial detriment of pensioners as described here:

(ii) Parliamentary debate and vote on switch to CPI via Uprating order, 17th Feb 2011 (part of debate in Sections 1208-1209)

http://www.publications.parliament.uk/pa/cm201011/cmhansrd/chan121.pdf

The right hon Gentleman raised the important issue of accrued rights. It is a fundamental point and it relates to my pre-election remarks about a pension promise made being a pension promise kept. What is the accrued right of someone in a public sector pension scheme, or any pension scheme? The first point is that everything accrued to date—all the revaluations to date, based on RPI—stand; we are not going back and saying that all the revaluations to date have to be reworked according to CPI. The provision is prospective, not retrospective. The question then is what future expectation people legitimately have. If they are in a company scheme that has RPI in the rules, we actively chose not to override that. If that was their expectation, because it was in the rules, that is what they will get. However, people in the public sector are members of a scheme whose rules are tied by statute to what we do to SERPS. That is the accrued right they have always had, and we are not changing it. We shall go on indexing their pensions in line with what we do to SERPS each year. That was the pension promise they were made; that is the pension promise we are keeping. We are indexing SERPS by CPI. I accept that, and I also accept that on average that will be lower than RPI, typically by about 0.8% a year. I do not dispute that. The accrued right is the one we are honouring.

Steve Webb (right Hon)


The EDM motions, and campaign for their support, are due to concerns with (i) the suitability of the CPI index as a measure of pensioner inflation and (ii) the legislative implementation of CPI as the index for revaluation and indexation of final salary pensions that are linked to Serps.

JamesU

Wolstan_Dixie

Thank you, that is clear.

But is it not true that the basic state pension is going up by RPI this April? (for the last time).

And (by the above provisions) the LGPS is going up by CPI in April?

For the same period.

How can that be fair?

Stargazer57

Where have you got this idea that all pensions should go up at the same rate?

In the past the Basic State Pension has had a minimum increase of 2.5%, even when prices rose by less than this.

In future the Basic State Pension will rise by the highest of CPI, Earnings or 2.5%.

What is wrong with that?

viridens

RichandJ wrote: »

Can you keep the noise down as u go past my office then please. I'm on my 7th weekend in a row at work*, putting right 20 years of serial incompetence and stupidity, therefore I'm finding it a bit difficult to locate any charitable feeling toward anything ill-informed right now.

* which for a Monday to Friday 9-5er is not fun.

I trust that you were not too disturbed by our passing.
I am curious to know more about the nature of your work and the 20 years of incompetence you mention. Is it possible to give any more details?

P.S. I am pleased that your working day affords the flexibility to access and contibute to websites like this, which would be a disciplinary matter in many Public Sector jobs (unless things have changed since I retired).

RichandJ

viridens wrote: »

I trust that you were not too disturbed by our passing.
I am curious to know more about the nature of your work and the 20 years of incompetence you mention. Is it possible to give any more details?

P.S. I am pleased that your working day affords the flexibility to access and contibute to websites like this, which would be a disciplinary matter in many Public Sector jobs (unless things have changed since I retired).

It wasn't too bad, although the same can't be said for people going about their lawful business in the West End.

We can access sites like MSE pre and post normal hrs & at lunch, but I have a smartphone & smoke so can post anytime.

Like my sig says I work in pensions admin, we're the ones who do the calculations and, er, admin for pension scheme members. I'm currently doing an audit and data cleanse on a particular scheme & the level of mistakes I'm finding is almost beyond belief. So I will admit the public sector has no monopoly on useless incompetent employees, just seems to be a fact of life these days that most people either don't or can't give a s4it.

Wolstan_Dixie

Stargazer57 wrote: »

Where have you got this idea that all pensions should go up at the same rate?

In the past the Basic State Pension has had a minimum increase of 2.5%, even when prices rose by less than this.

In future the Basic State Pension will rise by the highest of CPI, Earnings or 2.5%.

What is wrong with that?

Both have used RPI up till now. Both will use CPI in two years time. There is a link (albeit to SERPS). I consider it was reasonable to suppose (as I did) that the transitional arrangements would be the same. I am sure many other people did too.

quinnect

Don't know who reads this and can understand the maths (I understand it a bit but not completely). The govt claims that geometric mean mimics people substituting lower price brands (of the same thing - this only works within a single good) for higher price brands when prices rise. The reason they say this is they claim that the way GM is calculated dampens the prices of higher rates items and thus increases the weight of lower price items which thius brings the average down. Note that this works by bringing the average down - it doesn't measure substitution or even have to know that there is any (in fact a paper for the BA pension fund by Dr Mark Coulter shows there generally isn't any substitution). Now Gareth Jones showing that the GM method cannot measure substitution at all because what it dampens is not higher prices but the highest percentage RISES in price. So if the highest rises were in lower price goods, as they may well be, then the GM would give lower weighting to lower price goods and imply that people were substituting higher price goods for lower price goods. Got that?? Basically this substitution claim is nonsense and we are being ripped off by false mathematics. Unfortunately the judges fell for this argument too. They may have the Latin (as Peter cook used to say) but they don't have the mathematics.