BGN Entrepreneur

Up to 12 million members of final-salary pension schemes face the prospect of a smaller pension, following the government decision to increase payments in line with the consumer price index rather than the retail price index. The advisers now warn that many people may need to start making extra savings from now on.
At present, final-salary schemes are required to increase the pension entitlements of former employees by at least RPI or 2.5%, whichever is the lower. In the past 20 years, RPI has averaged 3.6%. however, the new rules will see the minimum increase change to CPI, which has historically lagged RPI as it doesn’t include housing costs like council tax. CPI has averaged 2.8% in the past 20 years.
Private-sector schemes are allowed to uprate pensions by more than this minimum amount, and the National Association of Pension Funds said some might choose to go on using RPI if it is higher. But pension experts warned that most will use CPI to reduce their scheme liabilities.

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