According a report produced by Insight Investment, members of the Lloyds TSB No 1 defined benefit pension scheme could be up to £30,000 worse off under proposals being considered by the Government to change the way annual pension increases are calculated.
The UK Statistics Authority has proposed changing the way the Retail Price Index (RPI) is calculated. Specifically, it is proposing that RPI should be aligned with the Consumer Price Index including owner-occupiers’ housing costs. The Government has set up a consultation on the proposed reforms and that is due to close at the end of August. The consultation is mainly around whether the changes should be implemented with effect from 2025 or 2030.
According to the latest data there are some 13.5 million people in private sector pension schemes. Under the proposed changes, the annual measured rate of inflation, which would be used to calculate pension increases, would be lower on average by 1% a year. Insight Investment’s analysis shows that a member in a defined benefit pension scheme who is retiring at 65 on a pension income of £20,000 could lose in excess of £30,000 over the course of their retirement. Barnett Waddington, an actuarial consultancy, said that someone currently 50 with an RPI-linked pension paying £10,000 annually from age 60, would have previously expected to receive £500,000 in total if they lived to age 90. If the proposed changes are implemented that could be reduced to £425,000.
If a pension scheme’s increase rules make specific reference to RPI, which they do for the Lloyds TSB No 1 pension schemes, a change to the scheme rules is likely to be necessary in order to switch from RPI to CPIH.
Section 67 of the Pensions Act 1995 protects members’ past service rights and entitlements and there are restrictions placed on the power of amendment in the Lloyds TSB pension schemes rules. So, if the Government goes ahead with the changes then it would almost certainly have to introduce a statutory override or modification power to make it easier for schemes to make the changes.
This union and its members, many of whom live in marginal constituencies, would vehemently oppose such a change to pension scheme rules. We will keep members informed of developments but we don’t expect any changes to me made quickly given the current economic position.
Members with any questions on this should contact the Union’s Advice Team on 01234 262868 (choose Option 1).