You are here: Home - Retirement - Retiring now - News -

Inflation measure switch could leave millions of pensioners poorer

Written by: Sarah Davidson
More than 10 million UK pensioners will be left “poorer in retirement” from 2030 if a last-ditch attempt to stop the government changing the way it calculates the retail prices index fails.

A judicial review beginning tomorrow (22 June) will challenge government plans to align the way RPI is calculated with methods used to calculate consumer price inflation including housing costs (CPIH) from 2030 – a move likely to bring the rate of RPI inflation down significantly.

It would mean a fall in the value of around £400bn worth of RPI-linked government debt at a cost to British pensioners over the next eight years.

The appeal has been brought by trustees of the BT, M&S and Ford pension schemes, which collectively represent nearly 450,000 members and £83bn of assets.

They claim aligning RPI methodology with CIPH will wipe billions of pounds off the value of pension schemes, worsening their capital positions and likely resulting in some schemes being unable to pay out pensions promised to their members.

But despite the switch having the potential to wipe billions off the value of RPI inflation-linked bonds, the government has previously said it will not pay compensation.

Challenging the plans, the scheme trustees said in a statement: “We believe the far-reaching implications of this decision have not been fully considered.

“Over 10 million pensioners, through no fault of their own, will be poorer in retirement either from lower payments or lower transfer values as a result of the effective replacement of RPI with CPIH.

“Women will suffer the most from this change as they typically live longer.”

The statement added that the decision to pursue action was “not taken lightly” but the trustees believe a judicial review is “necessary to protect scheme members and scheme assets from the detrimental effects of this decision”.

The pensions industry has brought several legal challenges opposing the rule change since it was confirmed in 2020, with the Pensions and Lifetime Savings Association estimating in December last year that it would wipe £60bn off the value of UK pension schemes.

The case being heard this week hinges on whether the UK Statistics Authority and Chancellor Rishi Sunak hold the power to make a change of this order.

If judges find in the schemes’ favour, the decision would be reversed and pension savings protected.

Alternatively judges could rule the change can take place but the Treasury would have to pay around £40bn of compensation to bondholders.

Ian Mills, a partner at pensions advisory firm Barnett Waddingham, said the legal challenge was “not expected to succeed”.

In April RPI recorded inflation at 11.1% while CPIH inflation was 7.8%.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Why NS&I may need to trim interest rates for millions of savers

Savers continued to plough money into National Savings and Investment (NS&I) in April, though at a slower...
Why NS&I may need to trim interest rates for millions of savers

NS&I makes it easier to top up Premium Bonds

NS&I has started rolling out an alternative way to make payment, which should make it easier and more secu...
NS&I makes it easier to top up Premium Bonds

Move fast as one-year savings rates hit 5.25% PLUS all the week’s best savings accounts

A new one-year fixed-rate account has launched paying 5.25% from National Bank of Egypt, through Raisin UK.
Move fast as one-year savings rates hit 5.25% PLUS all the week’s best savings accounts

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week