Friday, 18 November 2011

The Great Pension Robbery Explained. Part 1: RPI to CPI

In the June 2010 Budget the Chancellor announced without consultation that the Government will “switch to a system where we up-rate public service pensions in line with consumer prices rather than retail prices”. That is a switch from the Retail Price Index to the Consumer Price Index.CPI and RPI are calculated from the same underlying price data but there are significant differences, notably the following:

  1. Various housing elements included in RPI are excluded from CPI including mortgage interest payments and council tax.

  2. CPI is generally calculated using a geometric mean whereas RPI in contrast is calculated using an arithmetic mean.

  3. In classifying goods and services, CPI follows an international classification system whereas RPI follows its own system.

As a result of these differences, since 1997 (when the 12 month rate of change for CPI was first available), RPI has been on average 0.8% a year higher than CPI. The repercussions for pension scheme members are therefore somewhat obvious, thousands cut from the value of individual public sector pensions at a stroke, without consultation or negotiation.

Thursday, 3 November 2011

How much worse off will you be under the pension proposals?

Pay more, work longer, get less.
Many public service workers are being asked to pay more in pension contributions by an average of over 50%.

You're being asked to work longer, as the retirement age for public service workers is set to increase.

And you'll get less. By using the Consumer Price Index (CPI) instead of the Retail Price Index (RPI) anyone getting their pension could be 8.5% worse off by 2017.

And the extra money isn't being used to improve pension schemes for the future, it's going straight to the Treasury to pay for the bankers' crisis.

Find out how you will be affected.

Pensions calculator

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