Budget changes have slashed public sector pensions

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English

date: 6 July 2010

embargo: 00:01 hours Wednesday 7 July 2010

An eighty year old pensioner with an average public sector pension would be more than £650 a year worse off if the budget change to the indexing of pensions had been in force since their retirement, according to new calculations from the TUC released today (Wednesday).

A little noticed budget announcement changed the figure used to uprate public sector pensions from the RPI inflation measure to CPI. As CPI is normally lower than RPI, public sector pensioners will usually get a smaller increase when their pensions are annually uprated.

Using official figures for CPI and RPI over the last twenty years, the TUC has calculated that an eighty year old pensioner on the average public sector pension of £5,500 who has been retired for twenty years would now have a pension of £4,845 a year - 12 per cent or £655 less - if CPI uprating had been in force since their retirement.

A public service pensioner who has been retired for ten years would now have a pension 8.4 per cent lower.

Despite this change, public sector staff are still being told that their pensions will be linked to RPI. The guide to the Teachers' pension scheme says that: 'Your pension will be increased to take into account increases in the cost of living. This is called 'index-linking' because the increases are related to rises in the Retail Price Index.'

TUC General Secretary Brendan Barber said: 'On the day that the Institute of Directors is due to launch a further attack on public sector pensions, this TUC research shows that public sector pensioners have already been hit hard in the budget.

'Changing just one letter from R to C means that public sector pensioners will have a little shaved off their pension increase most years. This soon mounts up and older pensioners will in future find their pensions slashed.

'What makes this worse is that public sector staff have been told their pensions would be linked to RPI inflation. This has been changed without any negotiation or consultation.

'Significant changes were negotiated in public sector pensions just a few years ago and the Budget has cut benefits further. Yet Treasury figures endorsed by the National Audit Office and the Office of Budget Responsibility show that even before these budget changes, public sector pensions is the only cost associated with our aging society that holds steady over the next four decades.

'The real pensions crisis in the UK is the retreat by employers from providing pensions in the private sector - and the big unexpected looming bill for tax-payers is the cost of means-tested benefits for the millions let down by their employers. It is not surprising that employer organisations want to change the subject by attacking public sector pensions.'

Ministers say that CPI inflation is a more appropriate measure for pension indexing because pensioners are less likely to have a mortgage. But this fails to take into account council tax, often a heavy burden for pensioners, the effects of the different method of calculating CPI and other research that shows that inflation has been higher for pensioners than for average households in recent years, says the TUC.

Research for the Institute of Fiscal Studies has shown that the basic state pension increased by lessthan pensioner inflation in 2006, 2007 and 2008, and even the guarantee element of the pension credit, uprated in line with average earnings, fell relative to pensioner inflation in both 2007 and 2008.

NOTES TO EDITORS:

Financial losses to retired people with a public sector pension

Number of years retired

Year of retirement

Sept. RPI

Sept. CPI

% loss

CPI linked pension compared to £5,500 median pension

cash lost on median public sector pension of £5,500

21

1989

7.6

5.2

13.9%

£4,737

£763

20

1990

10.9

8.1

11.9%

£4,845

£655

19

1991

4.1

7.1

9.6%

£4,970

£530

18

1992

3.6

3

12.2%

£4,831

£669

17

1993

1.8

3

11.7%

£4,859

£641

16

1994

2.2

1.5

12.7%

£4,803

£697

15

1995

3.9

3

12.1%

£4,836

£664

14

1996

2.1

2.3

11.3%

£4,878

£622

13

1997

3.6

1.8

11.5%

£4,868

£632

12

1998

3.2

1.4

9.9%

£4,955

£545

11

1999

1.1

1.2

8.3%

£5,042

£458

10

2000

3.3

1

8.4%

£5,037

£463

9

2001

1.7

1.3

6.3%

£5,152

£348

8

2002

1.7

1

6.0%

£5,173

£327

7

2003

2.8

1.4

5.3%

£5,208

£292

6

2004

3.1

1.1

4.0%

£5,280

£220

5

2005

2.7

2.5

2.1%

£5,385

£115

4

2006

3.6

2.4

1.9%

£5,395

£105

3

2007

3.9

1.8

0.8%

£5,458

£42

2

2008

5

5.2

-1.3%

£5,571

-£71

- The table presents the reduction in the current value of the median public sector pension (estimated by the TUC at £5,500) if it had been uprated by CPI rather than RPI by years of retirement.

- For example someone who retired in 2000 who currently receives £5,500 a year would have a pension of £5,037 a year if their pension had been uprated by CPI rather than RPI since their retirement. This is a loss of 8.4 per cent or £463.

- The table was prepared by first calculating what a pension today of £5,500 would be worth each year in the past by reducing it by the value of RPI in each year back to 1989 when figures for CPI are first available (Table 6.19 in Social Trends 2010). Each year's figure was then uprated in line with the previous year's CPI to produce the figure in the penultimate column.)

- Years in which CPI was higher than RPI are in bold.

- The guide to the teachers' pensions scheme can be found at www.teacherspensions.co.uk/members/members9.htm#anchor11

- The IFS research cited in the press release can be found at www.ifs.org.uk/comms/comm106.pdf

- CPI inflation tends to be lower than RPI because it excludes housing costs and council tax, and is calculated in a different technical way, which means that even if other things are equal it will be 0.5 per cent less than RPI.

- All TUC press releases can be found at www.tuc.org.uk

- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit www.tuc.org.uk/pressextranet

- Congress 2010 will be held at the Manchester Central Convention Complex from Monday
13 September to Thursday 16 September. Free media passes can be obtained by visiting www.tuc.org.uk/congress/tuc-18063-f0.cfm and returning a form. Applications must be in by noon on Monday 6 September. Any received later than that will be processed in Manchester and will cost £50.

Contacts:

Media enquiries:
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk

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