On the 25th November, HM Treasury and the UK Statistics Authority published their response to this year’s consultation on the reform of the Retail Price Index (RPI). It was not mentioned at all in the Chancellor’s speech to House of Commons. This so-called reform, if implemented, could result in millions of retirees seeing significant cuts in their pensions.
The RPI is the oldest measure of consumer prices in the UK and is widely used across the economy. For some Lloyds pension scheme members, pension payments are increased each year in line with the RPI. The Government is planning to do away with the RPI from February 2030 and replace it with a newer measure of inflation called CPIH, which is the Consumer Price Index plus housing costs. This new inflation measure results in a figure lower than RPI, often by as much as 1%.
So, what does the change actually mean? Barnett Waddingham, an actuarial consultancy, has calculated that someone currently aged 50, with an RPI-linked pension paying £10,000 annually from age 60, would have previously expected to receive £500,000 if they lived to the average age of 90. If the Government gets its way, that pension would be reduced to about £425,000. Put another way, someone aged 60 retiring on a pension of 100 would, if that were uprated by RPI, have an income of 180 by the time they are 80. Under CPIH, that figure would be 150 – 20% less.
We are consulting our legal advisers and actuarial consultants on the Government’s proposals and will revert back to members shortly. In the meantime, members with any questions should contact the Union’s Advice Team on 01234 262868 (choose Option 1).