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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