Indexing of pensions

The bad weather and the consequential cancelled meetings has at least enabled something of catch up on outstanding tasks.


One of those tasks is a UNISON Scottish Pensions Bulletin on indexing of pensions. The UK Government has announced that it plans to index future pension benefits using the CPI instead of the RPI. The Scottish Public Pensions Agency is also planning to implement this in Scotland for local government by amending the LGPS regulations. The effect of the change is likely to result to a cut in pension benefits because the CPI is historically lower than the RPI. The CPI is generally 0.8% per annum less. The Hutton review calculated that this change could cut pension benefits by at least 15%.


This change will impact on future pensions, but also retired members in receipt of public service pensions. This is the first time in recent years that a pension reform has cut benefits for those who have already completed their pension contributions. If this was a commercial contract you could sue the provider for breach of contract and we would regard the Scottish and UK governments as being in a similar breach.

UNISON’s position is that the CPI is an inadequate measure of inflation and there should be a special index for pensions that is weighted on essential costs like energy, food and care cost increases. Debt is also an issue for pensioners, so interest rates are important for them as well. Equally the effect of interest rate cuts on the income of the retired should also be taken into account.

At UK level the Government intends to use the Pensions Increase Act to enforce this cut in pension payments. Congratulations to John Robertson MP for highlighting this in EDM 1032 . There is a template letter on the UNISON UK website for anyone who wants to write to their MP on this issue.

PS

Just after I posted this the UK Government announced that it would not be enforcing the change in the private sector. The quote from the Minister:

"We think that if the scheme rules say your pension is protected by the RPI then that should continue to be the case," Mr Webb told the World at One programme on BBC Radio 4.


"Because we want people to have confidence and trust in their pensions we will not be re-writing the rules of their pension schemes. If you joined a pension scheme, [and] when you joined it the rules said that your pension would be protected by the RPI, and the scheme does not currently have the power to change its rules, we are not going to change that."

Public sector schemes also make reference to the RPI. Confidence in them Minister?