Pension value will be reduced by CPI inflation switch

Some five million people with private occupational pensions face losing up to 10% of their pension’s value over its lifetime, analysts warned, as the government said it would switch the inflation index used to uprate them, the Financial Times has reported.


Steve Webb, pensions minister, announced plans to legislate so that private occupational pensions would be uprated by the consumer price index (CPI) rather than the retail price index (RPI), which includes mortgage interest payments.


The move follows the government’s decision in last month’s emergency Budget to increase all state pensions and public sector pensions by the CPI rather than the RPI – a policy expected to cut billions from public spending.


The National Association of Pension Funds (NAPF) welcomed the announcement, saying it “gives final salary pensions some breathing space and will make it a little easier for firms to keep schemes open”.


Having changed the index for state pensions, it would have been “anomalous” to insist that RPI continued to be used for occupational schemes, said Joanne Segars, the NAPF’s chief executive, according to the Financial Times.


However, Brendan Barber, general secretary of the TUC, said: “This is a stealth cut on the pensions of middle income Britain.”

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