One little-noticed Budget measure could cost some pension savers thousands. The Treasury has confirmed that it is pushing ahead with reforms to change the way in which many people’s pensions go up in line with inflation – and the measure could even be introduced earlier than expected.
At present many occupational schemes increase the pensions they pay members in line with inflation each year. Many either link directly to the retail prices index (RPI) measure of inflation, which typically sits about one percentage point higher than the official consumer prices index (CPI) measure, or make the link on a discretionary basis.
Now, however, the Government is considering scrapping RPI as a measure of inflation altogether, possibly by 2025, even though when these plans were first mooted, 2030 was considered to be more realistic.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
For policymakers, the move from RPI to CPI makes sense. They’d rather have a single measure of inflation and most state benefits, pay awards and so on are already linked to CPI.
However, for current and future pensioners whose annual income is supposed to go up in line with RPI each year, the cost of the switch to the lower CPI rate will build up over time. The trade union Unison reckons it could cost the average pension scheme member as much as £12,000 over their retirement.
The change also has implications for pension-scheme investments, since it will reduce the income paid by the government’s index-linked gilts. Sadly, in many cases, schemes’ savings on members’ lower pension increases will be more than wiped out by lower investment returns.
-
House prices rise 2.9% – will the recovery continue?House prices grew by 2.9% on an annual basis in September. Will Budget policies and ‘higher-for-longer’ rates dent the recovery?
-
Nvidia earnings: what to expectNvidia announces earnings after market close on 20 November. What should investors expect from the semiconductor giant?
-
Act now to bag NatWest-owned Ulster Bank's 5.2% easy access savings accountUlster Bank is offering savers the chance to earn 5.2% on their cash savings, but you need to act fast as easy access rates are falling. We have all the details
-
Moneybox raises market-leading cash ISA to 5%Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
-
October NS&I Premium Bonds winners - check now to see what you wonNS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
-
Bank of Baroda closes doors to UK retail bankingAfter almost 70 years of operating in the UK, one of India’s largest bank is shutting up shop in the UK retail banking market. We explain everything you need to know if you have savings or a current account with Bank of Baroda
-
How to earn cashback on spendingFrom credit cards and current accounts to cashback websites, there are plenty of ways to earn cashback on the money you spend
-
John Lewis mulls buy now, pay later schemeThe CEO of John Lewis has said the retailer will consider introducing buy now, pay later initiatives for lower-priced items.
-
State pension triple lock at risk as cost balloonsThe cost of the state pension triple lock could be far higher than expected due to record wage growth. Will the government keep the policy in place in 2024?
-
Paragon raises rate on one-year fixed cash ISA to 5.75%Paragon Bank ups its one-year fixed cash ISA rate to 5.75% - is it enough to top the table?
