Pensions

[sharpend]

Just watched Today in Parliament where the TATA steel crisis is being discussed. It appears that there is an impasse with pensions and the Government would like to change the index linking from RPI to the lower CPI to make the purchase of the steel works (and thus workers pensions) more economic. However, the opposition states that this is illegal.

Please correct me if I am wrong, but was the reference for our military pension changed some years ago also from RPI to CPI?

[Avtur]

You are correct, hence no pension increase this year. Had RPI been the reference value then we would have got a raise.

[Motleycallsign]

Was it not the present opposition that effected the change?

[Al R]

In fairness to Broon & Blair, it was Steve Webb who introduced it, as part of the Lib Dem Co-Go. At the time, Webb said the changes should not be foisted on the private sector, and he has been vocal this past twenty four hours about it. I don't think he's scaremongering when he says it's the thin end of the wedge, but there again, the proposed EU harmonisation of inflation indexing is also just as threatening.

I also think it makes further tinkering with public sector pension schemes more likely.

[Voxpop]

Quite right Al. It was hidden in the first coalition budget!

[Sandy Parts]

Glad the poor old MPs manage to increase their 'communications' allowance each year with RPI. Wouldn't do for them to use the same measure they impose on others. (Even a tory MP saw how this might read and asked for an explanation - dailyreferendum.********.com/2008/01/communications-allowance-to-be.html

Edited to put the non-hyperlinked url in as like Melchett says, it wan't working (Pprune blocking blogspots - replace the stars with the singular version of the word blogspots...if you can be arsed. Don't blame you if not - losing the will to care myself..)

[Melchett01]

I tried clicking on Sandy Parts' link and it came up as 'not found'. I'm not sure if that was a reference to the website not being available or a comment on MPs' judgement and morality after, once again, demonstrating that they are clearly not in it with the rest of us!

[BroomstickPilot]

Hi sharpend,

I may be able to throw some light upon this for you.

I am a civvy and for very many years was a local government officer. Most public sector pensions always were, and still are, non-contributory but do have a proper pension fund that employers pay into on their employees' behalf. One or two schemes, such as the fire brigade and teaching profession have no pension fund at all and their pensions are paid directly out of income. But ours in the Local Government Service were always contributory. So from the age of 18 I paid into my pension every month and my employer paid in an equal amount on my behalf - fifty fifty.

Since the 1970s and until my retirement in 2001 I worked on the expectation that when I finally retired my pension would be index linked at the rate of the Retail Prices Index (RPI).

However, following the financial meltdown in 2008 (i.e. 7 years after I had retired) all public sector pensions ceased to be index linked to RPI and became indexed instead to the much less advantageous Consumer Price Index (CPI). (You will find a description of RPI and CPI on Wikipedia).

This was done by government diktat and without consultation on the grounds that there must surely now be a gap in the money available to support public sector pensioners which the nation could no longer afford. (Although it seems the nation could afford 0.7% of GDP in foreign aid).

In the case of the non-contributory pensions that was probably true, and even more so of the directly funded schemes, such as those of the fire brigades and teaching profession, where there was no pension fund and the pensions were being paid directly out of revenue.

The public sector trade unions, (notably UNISON in our case,) protested that only three years earlier (i.e. immediately after the financial crisis) our Local Government contributory pension scheme had been revised, in negotiation with the employers, to ensure that the fund would continue to be strong enough to cover all anticipated demands from retiring staff.

Needless to say, the government refused to budge and the trade unions took the government first to the domestic courts and, being unsuccessful there, on to the European Court of Justice.

However the ECJ found in favour of the government on grounds that under the regulations of public sector pensions it was up to the Secretary of State to decide at what rate pensions should be indexed.

Personally, I feel that our Local Governent Pension, by reason of having a sound pension fund and being fully contributory, should have been treated less harshly than those of professions with non-contributory schemes or whose pensions are paid out of revenue; but that's they way it went.

Best regards,

BP.

[charliegolf]

But ours in the Local Government Service were always contributory. So from the age of 18 I paid into my pension every month and my employer paid in an equal amount on my behalf

My 30 years of teaching was all contributory. Not sure about the 50/50 bit though.

CG

[sharpend]

Part of the MOD response:
The Government has responded to the petition you signed – “Reinstate RPI index linking to Military pensions from the current CPI index link”.

Government responded:

On 22 June 2010, the Chancellor announced that for 2011, public service pensions would increase in line with the CPI rather than the RPI.

On 22 June 2010, the Chancellor announced that for 2011, with the exception of the state pension and pension credit, benefits, tax credits and public service pensions would increase in line with the Consumer Price Index (CPI) rather than the Retail Price Index (RPI).

Public service pensions, including Armed Forces pensions, are increased under the provisions of the Pensions (Increase) Act 1971 and Section 59 of the Social Security Pensions Act 1975. The latter provides for public service pensions to be uprated at the same time and by the same percentage as the increase in the additional pension provided under the State Earnings Related Pension Scheme (SERPS), which has been based on the increase in the CPI since April 2011. Prior to this date the RPI was used rather than the CPI. The underlying purpose of this legislation is to maintain the purchasing power of the additional elements of state retirement pensions and public service pensions.

The rationale for the change is as follows:
• CPI is the headline measure of inflation used by the Bank of England;
• CPI takes better account of how behaviour changes in response to price changes;
• CPI also more accurately represents the inflation experience of pensioners and benefit recipients – for example, RPI excludes pensioners who receive a significant proportion of their income from the State (up to 20% of retired households); and
• CPI is less volatile – for example, RPI was negative in September 2009 whereas CPI continued to rise.

The pension is accrued (or activated) on the basis of current prices. The uprating of pensions does not apply retrospectively.

In response to a legal challenge against this decision the High Court and the Court of Appeal both ruled in the Government's favour, finding that CPI is appropriate for benefits and pensions uprating.

RPI has also historically experienced periods of negative year on year change, as in 2009 when the uprating of pensions in payment was also frozen.

Ministry of Defence

In other words, CPI is cheaper!

[Al R]

If you compared to how CPI and RPI compare (calculated geometrically vàv arithmetically), then CPI probably is a more accurate reflection of living costs (certainly, for pensioners). The problem is with how it was introduced and applied (retrospectively). As everyone advanced their careers, and if everyone knew (in pension fund accrual, notional pot or otherwise) what the future was going to be like, it may have been the case that pay would have increased more to compensate. I have no real issue with RPI in isolation, but I do have an issue with how it has been applied in context.

[Al R]

By way of further hypocrisy, the more parsimonious CPI is used because we are told RPI is no longer recognised. Fine. But how is it that student fees can be pegged to it, and consequently, rise much quicker? The government wants its penny and the bun. It's unacceptable - if we had honesty, parity and fairness we probably wouldn't mind so much, let alone be subjected to, these constant inconsistencies.

http://www.theguardian.com/money/blog/2016/may/28/student-loans-next-mis-selling-scandal

[glad rag]

Well the first start will be BREXIT.

After the cushy feeding trough of Europe has been pulled from under the likes of Cameron, Osborne Kinnock, Corbyn and their acolytes et al; at the coming GE, we can really make the B@stards snouts bleed.....it ain't going to be pretty but it needs to be done...



plan? plan?? you mean there's a PLAN???

[Pontius Navigator]

GR, as has been pointed out, the Remain camp got the Civil Service to outline the risks attached to leaving and ignored possible benefits.

Many prices are controlled by the Government, in particular petrol, tobacco and spirits but also VAT above 15%.

Leave campaign has has said the EU £10bn could go to the NHS, it is assumed that farmers would continue to get their subsidies etc. But would they? Would/Could the NHS use £10bn efficiently?

Instead, if that money was returned directly to our pockets the average family, 3people, could pay about £500 pa less tax. But has the Chancellor told us? No.

[Basil]

BA employees were given an undertaking in 1984 that their pensions would increase in line with the Cost of Living Index. This meant RPI increases because the CPI did not then exist; the CPI was introduced into the UK in 1996 to facilitate the UK’s move to join the Euro – a move which never happened. RPI pension increases were paid from 1974 until 2011.
Despite the 1984 undertaking to increase pensions in line with the RPI, increases in line with the CPI have been paid to BA pensions since 2011.

CPI takes into account 'trading down' when times are bad; hardly a basis upon which to sign off a financial undertaking.

There are times when you don't have to be paranoid to think the buggers are out to get you! :*

[Al R]

I read this morning, that BA has reached an agreement to peg cabin crew annual inflationary pay increases to RPI, yet the pension in payment is to remain increasing at CPI.

[BEagle]

Would/Could the NHS use £10bn efficiently?

On past and present form, that would be highly unlikely. Another layer of bureaucracy or some black hole spending on some useless IT system, with zero benefit to the genpub.

"Use the money for the NHS instead" is simply a 'Brexit' mantra to attract the dithering voters who know no better. It has as little credibility as the charlatans such as BoJo and Duncan-and-Smith who are simply hoping that a 'Leave' vote would bolster their personal political aspirations for the next government....

[Pontius Navigator]

BEagle, personally I think the outcome is immaterial. The other nonsense is the free mokvemy in the EU. We need to show passports to get out and again to get in. Once in Europe we, and anyone else in the world, can go where we like.

After Brussels we went through an ad hoc border control in Germany and saw one for people entering Holland, a week later, none. Would they really reintroduce internal border controls for the few Brits venturing in Europe?