RPI to CPI (July 2010)

George Osborne's Budget announced that payments to retired public servants will now rise with inflation measured by the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI).

The Government has also recently announced that it wants to change how some private sector pensions are calculated and the proposals could mean millions of people see lower increases to their pensions in retirement.

Pensions minister Steve Webb said there were plans to link pension payments to the Consumer Prices Index (CPI) measure of inflation instead of using the RPI. This will primarily affect those people in an occupational pension scheme.

The existing system ties pension increases to the Retail Prices Index (RPI), which includes housing costs such as mortgage interest payments. Accountants KPMG have said this change could reduce UK private sector pension liabilities by 10% or about £100bn.

Some companies would immediately see some reduction in pressure regarding their pension liabilities, and might therefore choose to keep their pension schemes open.

Between a quarter and a half of all current occupational pension schemes could be affected by the change, according to estimates however the effect of these proposed changes on individual members will depend on each pension scheme and how the scheme rules are set up. Some members could see lower pension increases, whereas others might get rises in line with RPI or CPI.

Contact us to discuss how the change in RPI to CPI could affect your pension scheme, and what might be the best route forward.

Cartlidge Morland is an independent employee benefits consultancy. We provide benefit services to a wide range of partnerships, family companies, PLCs, charities and governmental organisations. We also provide financial advice to private clients, investment management and mortgage broking services

Phone us on 020 7709 5560 or complete the online contact form