UK Public Sector Pensions Getting Squeezed?

The Telegraph reports, Public sector pensions may lose 15 per cent:

The use of CPI inflation to measure price increases influencing pension upgrades instead of the often higher-rising RPI measure is expected to mean a pensioner drawing £10,000 a year will see nearly £47,000 shaved off their pension pot, according to some calculations.

The ''hefty blow'' comes as workers and pensioners have faced challenges posed by high living costs while their savings have failed to make real returns due to record low interest rates.

Ros Altmann, director-general of over-50s group Saga, said: ''This will mean lower pensions all round, there's no doubt about that.

''The change from RPI to CPI is not about having a better measure of inflation, it's about cutting costs.''

Dr Altmann said the changes would make pension costs more sustainable and more affordable in future.

But speaking about what this meant for workers, she said: ''To get the same level of pension you will have to save more. That will be one of the consequences of this.''

RPI inflation is often higher than CPI because of the formula used to calculate it, with RPI inflation including some housing costs.

Laith Khalaf, pension investment manager at Hargreaves Lansdown, said that according to some estimates, the change to CPI was the equivalent of a 15% average cut in the value of a pension.

He said: ''It's a fairly hefty blow that's been dealt.''

Brian Strutton, GMB national secretary for public services, said: ''When the Government announced out of the blue in 2010 that it was downgrading the annual uprating of public sector pensions from RPI to CPI the GMB and other unions challenged the legality in the courts.

''How could it be right that pensions already being paid could be reduced by around 15% in value just at the whim of the Government?

''Unfortunately, the courts seem to take the view that the Government can do what it likes even if this amounts to taking money off pensioners just because they used to work in the public sector.

''It's not right and together with the other unions we will be considering the grounds for appeal.''

The decision has raised concerns that CPI inflation could become more widespread as a measure in the occupational pension sector.

But research from the National Association of Pension Funds (NAPF) has indicated that most occupational schemes have RPI inflation written into the rules.

The NAPF has found that about a quarter of occupational pension schemes are legally able to switch from RPI to CPI, but could not say how many have already done this or are seeking to do so.

The NAPF has also predicted that uncertainty over inflation measures could arise for those who have deferred their pension from a job they had previously left, where RPI inflation may not be written into the scheme rules.

Similarly, BBC reports, Pension switch challenge is lost by unions:

Trade unions have lost an appeal against a change in the way public sector pensions are protected against inflation.

The High Court ruled in December that the government's switch in calculations was lawful.

Trade unions had complained about how the Consumer Prices Index (CPI) was replacing the faster-rising Retail Prices Index (RPI) to uprate pensions.

Now they have lost the latest stage of their challenge at the Court of Appeal.

This confirms a reduction in the value of future annual pension increases for millions of public sector pensioners.

The policy saves the government billions of pounds in the coming years and is a major area of disagreement within the public sector pensions dispute.


CPI and RPI are measures of inflation - or the cost of living - based on the prices of baskets of goods and services. The RPI basket includes mortgage interest payments and some other housing costs, and is generally higher owing to the formula used to calculate it.

The use of CPI for inflation-proofing pensions was first applied in April last year.

It saw pensioners in schemes covering civil servants, teachers, NHS employees, local government and others, receiving an increase of 3.1% instead of 4.6%.

At the original court challenge in December, the trade unions' lawyers had argued that, in making the change, the government had acted beyond its powers granted by the Social Security Administration Act.

They have also argued that the government was driven by the savings that such a switch would bring to the public purse.

Judges found unanimously in favour of the government in three of four counts, and by a majority of 2-1 on a fourth. The Court of Appeal has now upheld this decision unanimously, ruling that the government would have made the switch, even if the UK's economic situation had been discounted.

The Appeal Court judges refused the unions permission to appeal to the Supreme Court, although the unions can ask the Supreme Court directly for permission to do so.


A legal representative of the unions said they would now be considering their next steps.

A government spokesman said: "The government welcomes the Court of Appeal's judgement upholding its decision to use the Consumer Prices Index for inflation-proofing certain pensions and benefits."

Two groups, mainly consisting of unions, launched the legal action. The Fire Brigades Union, NASUWT, Prison Officers Association, Public and Commercial Services union, Unison and Unite make up one group, while the other consists of Prospect, the FDA, GMB, Police Federation, National Association of Retired Police Officers and the Civil Service Pensioners' Alliance.

The judges agreed to allow the National Union of Teachers, Association of Principal Fire Officers and National Federation of Occupational Pensioners to join the challenge.

I've already written on "RPI or R.I.P" but pretty much agree with everything Dr. Ros Altmann said above, the switch to CPI has nothing to do with a better measure of inflation, it's all about cutting pension costs.

Few in the private sector will empathize with trade unions on this inflation battle but the larger war on pensions rages on in the UK where most Britons face old age poverty. The irony in all this is that while George Osborne panders to the banksters, government statisticians and technocrats are busy squeezing public sector pensions.

Welcome to the 'new and improved capitalism' where governments from the Left and Right bail out and pander to banksters while squeezing the poor and working poor, warning of a "Greek-style debt calamity". It's a huge scam and very few have caught on to the biggest assault on organized labor in post-war history.

Below, follow Budget 2012 live where George Osborne will unveil the outline of a "tycoon tax" to stop tax avoidance by Britain's millionaires. Of course, George will steer clear from revealing that the government is secretly taxing public sector pensions.