Warning of hefty blow to pensioners

Coins and notesChanges to the way increases in public-sector pensions are calculated could wipe as much as 15% off their value, unions and analysts have warned.

The use of CPI inflation to measure price increases influencing pension upgrades instead of the often higher-rising RPI measure is expected to mean a pensioner drawing £10,000 a year will see nearly £47,000 shaved off their pension pot, according to some calculations.
The "hefty blow" comes as workers and pensioners have faced challenges posed by high living costs while their savings have failed to make real returns due to record low interest rates.

Ros Altmann, director-general of over-50s group Saga, said: "This will mean lower pensions all round, there's no doubt about that. The change from RPI to CPI is not about having a better measure of inflation, it's about cutting costs."

Dr Altmann said the changes would make pension costs more sustainable and more affordable in future. But speaking about what this meant for workers, she said: "To get the same level of pension you will have to save more. That will be one of the consequences of this."

RPI inflation is often higher than CPI because of the formula used to calculate it, with RPI inflation including some housing costs.

Laith Khalaf, pension investment manager at Hargreaves Lansdown, said that according to some estimates, the change to CPI was the equivalent of a 15% average cut in the value of a pension. He said: "It's a fairly hefty blow that's been dealt."

Brian Strutton, GMB national secretary for public services, said: "When the Government announced out of the blue in 2010 that it was downgrading the annual uprating of public sector pensions from RPI to CPI, the GMB and other unions challenged the legality in the courts.

"How could it be right that pensions already being paid could be reduced by around 15% in value just at the whim of the Government?

"Unfortunately, the courts seem to take the view that the Government can do what it likes even if this amounts to taking money off pensioners just because they used to work in the public sector. It's not right and together with the other unions we will be considering the grounds for appeal."

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Warning of hefty blow to pensioners

Most recently HM Revenue & Customs let Vodafone off the hook - for quite a sum. Vodafone paid out just £1.25 billion despite an original tax bill being closer to £8 billion (HMRC has always refused to reveal how much it thought the Vodafone final bill was). The episode was made even more shaming and painful because Vodafone was given several years to come good with the cash owed - even though it was sitting on a substantial cash pile at the time.

The Exchequer is estimated to have lost around £10 million to Goldman Sachs recently through an 'error' made by HMRC. The episode relates to an employee benefit trust run by Goldman allowing employees to take non-repayable loans that had no National Insurance contributions tied to them. HMRC did claw back the full amount from more than 20 businesses - but not Goldman. HMRC remains cagey about the details of the deal. Little HMRC accountability or transparency.

Huge problems with QinetiQ, the former Defence Evaluation and Research Agency, or DERA. A lack of clarity on contractual arrangements at the outset didn't help, allowing private equity company Carlyle to hammer the price down (why would you start negotiations when you didn't know the company's true value?). The Ministry of Defence behaved, it was said, like "an innocent at a table of card-sharps". Estimated cost to the taxpayer - £90 million. Huge sums were later made by QinetiQ management when the company listed.

The TaxPayers' Alliances estimates £2.7bn worth of taxpayer cash was wasted with a super-expensive 'National Programme for IT in the NHS'. The Department of Health, in the end, had very little to show for it as a consequence. Another example of poor management and a seemingly ingrained inability to provide taxpayers' with value for money.

"BT is paid £9 million to implement systems at each NHS site, even though the same systems have been purchased for under £2 million by NHS organisations outside the Programme", the Commons Public Accounts Committee noted.

Contentious. The Office for National Statistics estimated this has declined 3.4% since 1997, "with inputs increasing by 38%." The Centre for Economics and Business Research estimate that this inefficiency costs the taxpayer £58.4 billion a year.

Given the above record, are there any deals that the taxpayer has actually won out on? Not many, but the one successful project was the roll out of new Jobcentre Plus offices. It came in £314 million under budget, claims the Taxpayers' Alliance. A small cheer.


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