From the TUC

Breaking news: occupational pensions now to be linked to CPI

08 Jul 2010, by in Pensions & Investment

Pensions Minister Steve Webb has announced in a written ministerial statement (that I’ve not yet found online) that the government will in future use CPI indexation for occupational pensions and pensions paid by the PPF and FAS.

While occupational pensions are free to set their own increases they must meet a minimum increase in line with the cost of living up to a maximum of 2.5 per cent. This is known as Limited Price Indexing.

The law does not say which index should be used but requires the Secretary to say each year what the inflation rate will be. In the past this has been the RPI. In future the CPI will be used.

In the budget this change was announced for public sector pensions. Now private sector pensions have been levelled down to this too. We’ve already looked at what this means for public sector pensions.

4 Responses to Breaking news: occupational pensions now to be linked to CPI

  1. Tweets that mention Breaking news: occupational pensions now to be linked to CPI | ToUChstone blog: A public policy blog from the TUC —
    Jul 8th 2010, 7:17 pm

    […] This post was mentioned on Twitter by ToUChstone blog. ToUChstone blog said: Breaking news: occupational pensions now to be linked to CPI […]

  2. Allan David Cliff Warner
    Jul 13th 2010, 2:19 pm

    ”The Chancellor of the Exchequer announced in the Budget statement on 22 June that, with some exceptions, consumer prices rather than retail prices will be the basis for uprating most benefits and public sector pensions.

    The Government believe the CPI provides a more appropriate measure of pension recipients’ inflation experiences and is also consistent with the measure of inflation used by the Bank of England. We believe, therefore, it is right to use the same index in determining increases for all occupational pensions and payments made by the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS).

    Consequently we intend to use the CPI as the basis for determining the percentage increase in the general level of prices for the 12 months ending 30 September 2010 when preparing the order required under paragraph 2(1) of schedule 3 to the Pension Schemes Act 1993 in relation to revaluation and indexation of pension rights in defined benefit pension schemes, and the order made under section 109 of that Act in relation to increases in guaranteed minimum pensions paid by contracted-out defined benefit schemes in respect of pensionable service between 1988 and 1997; and amend legislation to enable CPI to be used for relevant increases in respect of the PPF and FAS.

    Using CPI will mean making some small changes to primary legislation to ensure we can apply it fully in every circumstance. We will bring these before Parliament at the earliest opportunity.”

    This is copied off of Steve Webbs page on webb site.
    To the best of my understanding this applies to the failed/failing pension schemes that are supported by the government PPF and FAS schemes. It appears to correct an anomally where failed schemes would have enjoyed better terms than those in the public sector. I conceed that it is poorly worded and punctuated, especially para three. But, I have read this very carefully many times and believe my conclusions are correct. It is the end of the last sentence in para three that reinforces my opinion.
    I would disagree most strongly with his assertion that CPI most closely reflects the pension recipients’ inflation experiences. It has been demonstrated on numerous occasions in recent times that even RPI rates are too low. The use, by a working class pensioner, of the BBC facility to calculate ones own personal inflation rate will demonstrate this.
    I would welcome your observations/ comments on my interpretation of Steve Webbs written submission to the House of Commons on the 8th July. Does it or does it not apply to functioning private pension schemes. I am sending an email to Steve Webb asking the same. If you conclude that it does apply why has there not been more fuss about it. I am a BT pensioner and in the last few days my mood has alternated between incandescant rage to deep despair with little sleep at night.

  3. Nigel Stanley

    Nigel Stanley
    Jul 13th 2010, 2:45 pm

    Benefits paid by private sector pension schemes are set by their own rules.

    But the 1995 Pensions Act introduced a minimum standard for pensions uprating called Limited Price Indexing or LPI as it’s generally known.

    This requires pensions to upgrade by inflation up to a limit. What get’s complicated is that this limit has changed over time. But that is not what has now changed.

    The important thing is how inflation is measured. The law requires the government to determine the increase in prices each year. This figure is used in many benefits and pensions calculations, including LPI.

    Up until now the government has always used RPI to measure the increase in prices. What Steve Webb said was that in future they will use CPI.

    But whether this affects any particular pension scheme will depend on that scheme’s rules. If they say they will uprate by RPI then they will have to continue to do that, unless the rules are changed – which is normally not an easy process. I do not know what the BT schemes’ rules say.

    Employer groups are howver campaigning for what is called a statutory over-ride which would mean all scheme rules are effectively changed to meet this new and worse standard. They would not have to go through the difficult process of changing their rules.

    I hope that helps explain what the minister meant – even if it’s not good news.

  4. sian thomas
    Aug 27th 2010, 9:40 pm

    i would like to speak to someone at the TUC to escalate a very disturbing problem caused by CPI/RPI issue . This is already causing harm and cost to public sector workers and is largely unknown and being ignored by politicians . I don’t know who to communicate this to, maybe the TUC can pick the story up ?