The Struggle to Stay Afloat Just Got Harder
September 1, 2022 – In one move, the High Court changed the way retirement calculations are done, wiping out a huge percentage of funds that pensioners count on to live. Pension scheme trustees had gone to court to stop the government’s proposal to change the way inflation is calculated but lost their fight.
Out with the old
Since 1956, the official measure of inflation has been done using the Retail Price Index (RPI). This index was used to increase salary-linked pensions, or ‘defined benefit’ pensions, every year to keep up with inflation for about 10.5 million people. The court ruling now replaces the RPI with the CPIH, a variant of the Consumer Prices Index, which includes homeowner costs, saying the RPI is ‘flawed.’
From your account to government coffers
According to the Office for National Statistics, the current RPI is 12.3pc, while the CPIH is at 8.8pc. In retirement savings, this difference will eliminate up to 20pc for some retirees, with the average pensioner losing between 10pc and 15pc. Most company pension schemes that do still pay inflation-linked pensions also have annual increases capped at 5pc. The loss from retirees’ savings will be tens of thousands of pounds over the course of their retirement, while adding about £100 billion to the Treasury.
Companies are not happy about it
Because traditionally reliable company schemes through BT, Marks and Spencer, and Ford were set to be severely affected, those companies launched the judicial review, arguing that the change was unlawful. Once the decision was made against their case, they did not reveal if they intended to appeal the judgment.
A spokesperson for the pension schemes said: ”This decision will leave millions of pensioners in defined benefit schemes with RPI-linked benefits poorer through no fault of their own and facing substantial decreases in their year-on-year income. Women will be particularly impacted since they live longer and retire earlier.”
Are state pensioners and public schemes different than the ones described above?
The change comes as the state pensioners and members of public sector schemes are expected to see their incomes rise by at least 10pc next spring as the Government guarantees to protect their pensions from rising prices.
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