Worse pensions for 10m after inflation shake-up

THREE of the UK’s biggest pension funds are calling for a Judicial Review of a government shake-up of the inflation regime, claiming it will leave 10 million people poorer in retirement.

The trustees of the BT, Ford and Marks & Spencer pensions scheme says a move to replace RPI, the retail price index, with CPI, consumer price inflation, will hit women worst of all, since they tend to live longer so typically get lower pensions in the first place.

Since RPI includes the cost of housing – mortgages and council tax – it tends to be about 1% higher, which means pension funds linked to inflation set aside more assets to meet future retirements.

A fall in pension contributions of 1% a year is hugely significant on long-term savings.

Last November, the Treasury said it will replace RPI with CPI from 2030, a move it felt gives funds enough time to prepare.

The fund trustees, which represent nearly 450,000 members and hold £83 billion of assets, believe the move has “far-reaching implications” which have “not been fully considered”.

Some of the funds are already running a deficit, in BT’s case of £9 billion.

These “defined benefit” schemes are highly valuable since they pay a far greater income than the now more usual defined contribution schemes.

The funds said in a joint statement: “The reform also significantly reduces the value of RPI-linked assets held to meet pension promises to members, weakening schemes’ funding positions and, in turn, adding pressure on sponsoring employers.”

They add: “The decision to pursue action has not been taken lightly, but the Schemes believe that a judicial review is necessary to protect scheme members and scheme assets from the detrimental effects of this decision.”

A claim against the Chancellor and the US Statistics Authortity has been filled at Court. They have 21 days to respond while the Court decides whether to grant permission to proceed.

While the inflation shake-up is likely to be a cost-saver to the government, the trustees say they have to act since it is not in the interests of their members.

Pension funds say the shift will overall cost them more than £120 billion. The government estimates it will have cost savings of £2 billion a year from 2030.

The Treasury had no immediate comment, but is likely to argue that the strain on government finances from the state pension is likely to become so acute that something major had to be done.