Linking pensions to CPI costly for workers

Linking pensions to CPI costly for workers

Last year’s decision to tie public sector pensions to the consumer prices index (CPI) rather than the retail prices index (RPI) will result in pay-outs being reduced by over 17 per cent over 15 years, according to the TUC.

In 2010 the government decided that pensions would rise in line with the CPI, which increases more slowly that the RPI, as part of its efforts to save money.

The change took place in April 2011, when those receiving a public sector pension received an increase of 3.1 per cent, rather than the 4.6 per cent they would have received if the RPI measure had been used.

As part of yesterday’s Autumn Statement, the Office for Budget Responsibility (OBR) released revised figures estimating that the gap between the RPI and CPI measures will widen from 1.2 per cent to 1.4 per cent a year.

This would save the government 17 per cent, compared with the amount it would have to pay out if public sector pensions were linked to the RPI.

The OBR estimates that by 2016 the gap between CPI and RPI could reach 1.8 per cent, with the CPI falling to 2 per cent by this date, and the RPI falling to 3.8 per cent.

The government’s decision to switch from RPI to CPI has been challenged in the High Court by several public sector trade unions but a decision has not yet been reached.

Public sector pensions were on everyone’s mind yesterday, when up to two million workers staged a 24-hour strike over further changes to pensions, leading to schools being closed and hospital operations being cancelled.

Today the government said it is committed to reaching an agreement over public sector pensions and the Department of Education is meeting with teaching union representatives.

Under the proposed changes, public sector workers’ pension contributions would increase and they would have to work longer before being eligible to take their pension.

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