THE Consumer Price Index (CPI) and Retail Price Index (CPI) figures are both out today. CPI is expected to hit around 3.5 per cent, while RPI could go as high as 4.8 per cent. That difference may seem fairly insubstantial, but a lot of people reaching retirement should take note.
Why? Well because according to Zoe Lynch, a partner at Sacker and Partners, the difference could cost you about 25 per cent of your pension. How? Mostly because the Pensions and Savings Bill, which was published last week, contains plans to switch the measure for increasing many pensions – private and state sector, but not the state pension – to account for inflation from the RPI to the CPI.
“Whether you are going to be affected depends on the luck of the draw” she says. Those with benefits in an occupational scheme, where the rules specify RPI, will escape. Where increases are linked only by reference to the statutory minimum, people may lose out. And those in public sector jobs will mostly have to endure the change – controversially, even including the armed forces.
At least pensioners will not actually necessarily have to take their (potentially less valuable) pensions, however, because they will be able to carry on working. Under the terms, firms will no longer be able to force workers with “agreed retirement ages” out of their jobs.
The minister for employment, Edward Davey, said “If someone wants to stay in work they should have that choice, which is why today the government is announcing it is signing the default retirement age to the history books.”
But Philip Booth, the editorial direction of the Institute for Economic Affairs, disputed that logic. He argued that by making it harder for employers to dismiss older workers, it would deter them from hiring them in the first place – making it harder for older workers to switch jobs. He described the reform as “another nail in the coffin of freedom”.
That may seem a little dramatic, but there is no doubt that these reforms are important. People soon to be pensioners should be aware.