From the TUC

The practical difference between RPI and CPI for benefits

22 Jun 2010, by in Society & Welfare

Richard has already blogged about the impact of ditching RPI as the measure for indexing benefits.

It provoked me into building a quick spreadsheet model of the difference it would have made since 2000.

If child benefit had been linked to CPI since 2000 instead of RPI it would now be £18.05p for the first child rather than the current £20.30.

Carers’ allowance – paid to people looking after dependents – would now be £5 less at £48.64 a week rather than its current level of £53.90.

The Chancellor today announced that most future benefits would be linked to CPI rather than RPI. In most years CPI is lower than RPI and does not include housing costs. It soon starts to make a difference.

The first table shows the September rates of CPI and RPI. This is the month used for uprating.

CPI (%) RPI (%)
2000 1 3.3
2001 1.3 1.7
2002 1 1.7
2003 1.4 2.8
2004 1.1 3.1
2005 2.5 2.7
2006 2.4 3.6
2007 1.8 3.9
2008 5.2 5
2009 1.1 -1.4

This means that in cash terms benefits would have gone up by 31% since 2000 under RPI, but just 20% under CPI.

The next table shows how the 2000 rate would have been indexed by RPI and CPI. In Sep 09 RPI was negative, this model assumes a freeze in benefits as government’s are unlikely to make actual cuts.   The previous government rounded benefits to nearest 5p. This model does not. In some years the previous government increased child benefit more than RPI.

carers child benefit 1st child
Actual carers’ allowance Actual child benefit 1st child upgrade by CPI upgrade by RPI upgrade by CPI upgrade by RPI
2000 40.40 15.00 40.40 40.40 15 15
2001 41.75 15.50 40.80 41.73 15.15 15.50
2002 42.45 15.75 41.33 42.44 15.35 15.76
2003 43.15 16.05 41.75 43.16 15.50 16.03
2004 44.35 16.50 42.33 44.37 15.72 16.48
2005 45.70 17.00 42.80 45.75 15.89 16.99
2006 46.95 17.45 43.87 46.98 16.29 17.44
2007 48.65 18.10 44.92 48.67 16.68 18.07
2008 50.55 18.80 45.73 50.57 16.98 18.78
2009 53.10 20.00 48.11 53.10 17.86 19.72
2010 53.90 20.30 48.64 53.10 18.06 19.72

18 Responses to The practical difference between RPI and CPI for benefits

  1. petermcd
    Jun 22nd 2010, 9:39 pm

    Thanks for simplifying a very difficult concept to grasp.
    Basically the poorest are getting it right up them yet again. 2.5% rise in V.A.T and a reduction in benefits when they are most needed.The fat get fatter and the poor get fucked over yet again.

  2. Tom
    Jun 23rd 2010, 7:53 am

    It was also brought too my attention that how much would the value of benefits be worth if the Government are going to calculate them on CPI Rather than RPI. However, is there any way of calculating TAX Credits? Currently I am claiming around 3000 pounds a year but its based on RPI how much would this be worth if it was measured on CPI?

  3. Paul Beswick
    Jun 23rd 2010, 11:57 am

    This change is a big concern for public sector pensioners. If the CPI averages 1% less than the RPI, then the pensions will 9% lower after 10 years and 18% lower after 20 years than would have been the case with RPI updating. If the difference is 2% between RPI and CPI the losses would be 17.7% and 32% after 10 and 20 years respectively. These figures also apply to benefits of course. The small differences over a year do not look so serious but over the longer term, these reductions are very substantial. One should also note that pensioners’ inflation tends to be higher than for the population as a whole because of their spending paterns.

  4. Nigel Stanley

    Nigel Stanley
    Jun 23rd 2010, 12:11 pm

    I’d not seen that future public service pensions will be linked to CPI – that would seem to be a breach of accrued benefits. Do you have a source for this Paul?

  5. Paul Beswick
    Jun 23rd 2010, 12:38 pm

    Yes, it was in the budget. You’ll find it in the Guardian supplement today or the BBC website.
    These changes to ‘benefits, tax credits and public service pensions will save £6bn per year by the end of the Parliament’ – so it shows how much they will withdraw from these payments.

  6. Nigel Stanley

    Nigel Stanley
    Jun 23rd 2010, 12:50 pm

    I’ve checked and you’re right. We missed that.

    Coincidentally a journalist rang just after your comment and we’ve said this:

    “Linking increases in current public service pensions to CPI rather than RPI in future comes as a bolt from the blue.

    While current public sector staff are braced for attacks on the pensions they build up in future, ministers have said that they would protect accrued benefits.

    The link to RPI is a benefit that pensioners have already paid for – the definition of an accrued benefit. A link to CPI will slice a bit off their pension most years.

    And as most public service pensions are less than about £5,000 a year, this will hit many pensioners with low to modest incomes.”

  7. CPI, RPI and public sector pensions | ToUChstone blog: A public policy blog from the TUC
    Jun 23rd 2010, 6:43 pm

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  8. pauline wilson
    Jun 25th 2010, 2:00 pm

    I am already receiving a local government pension – can you tell me whether the link to cpi will apply to my pension as currently it is linked to rpi

  9. Nigel Stanley

    Nigel Stanley
    Jun 25th 2010, 2:31 pm

    As I understand it, the announcement in the budget only applies to the public sector pensions run by central government. It is not yet clear whether this will also apply to the other public sector schemes such as yours.

    However I would not be surprised if other schemes attempt to follow suit in both the private and public sector if their rules allow them to do so. There is still some doubt about the legality of such moves, even if it clear that in moral terms this is an attack on the accrued benefits that you thought you had saved for.

  10. Pauline Pollard
    Jun 27th 2010, 1:22 am

    Its not just benefits but public sector pensions that are linked to CPI and not RPI from now on. I contributed 9% of my income and topped this up to 15% of my income so that I would have a pension above benefits. I particularly feel it is unfair that I was encouraged to contribute additional income. It cost my thousands of pounds and now it is likely that I will finally become dependent on benefits.

  11. Ray Spurgeon
    Jun 29th 2010, 1:01 pm

    I retired from NHS 11 years ago. At the time I was given a pension scheme booklet: “Notes for pensioners and their dependants”. To precis, It states:

    “Your pension is increased by the same percentage as SERPS (now “Additional State Pension”). This is based on the rise in retail prices”.

    Although the booklet also states it is not a full statement of the law governing the NHS scheme it seems pretty clear to me that I was promised a link to RPI !!! I kept my side of the bargain and much more in terms of the commitment I made to the NHS. So much for the payback.

  12. aplus video to xbox
    Jul 5th 2010, 5:02 am

    blurayripper…

    Great post Paul. I think you’re definitely on to something here….

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    Jul 6th 2010, 11:20 pm

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    Jul 7th 2010, 10:53 pm

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  16. Dave McClements
    Aug 16th 2010, 10:52 am

    Could anyone of you kind people please tell me whether or not the change for pensions from RPI to CPI is retrospective?

    I am currently aged 61 and have been receiving my NHS Pension since 2004.
    No one appears to be asking the “people” ie This Con/Lib cowboy outfit the most obvious and important question of all which as mentioned in this post is simply whether or not the “proposed” change is retrospective or are current recipients protected?

    Regards

    Dave McClements

  17. Nigel Stanley

    Nigel Stanley
    Aug 16th 2010, 11:09 am

    Dave

    This will apply to current pensioners.

    In future your pension will go up in line with CPI, not RPI.

    It will not be retrospectively applied to previous pension increases. The pension you receive now will be upgraded in future by CPI.

  18. Dave McClements
    Aug 16th 2010, 11:21 am

    Thanks for the “good” news!!!

    As for me I will be challenging through the courts these Con/Lib cowboys about their INTENDED plan to switch from RPI to CPI.

    I believe I signed up and contributed for 20 odd years to a Pension Scheme that CLEARLY STATED that my annual rise was linked to RPI and NOT CPI.

    I have not seen, nor been made aware that any new law or laws have been passed to implement this new change?
    I suspect I am on a “hiding” to nothing as most of the Public are either not aware of the INTENDED implications, or just don’t care.

    What are the Trade Unions doing about this issue, nothing I suspect, just driving around pro-porting to be acting on my behalf ina big fast car?

    Johnny two jags come to mind with anyone?