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Rpi - Cpi Switch For Private Sector Pensions.

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Ive not seen any thread here about the governments recent anouncement of its intention to link rises in private sector pensions to CPI instead of RPI.

Have I missed it?

I think it was part of the budget and discussed in one of the threads then.

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Ive not seen any thread here about the governments recent anouncement of its intention to link rises in private sector pensions to CPI instead of RPI.

The government doesn't set what index PRIVATE pensions are linked to, only PUBLIC pensions.

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The government doesn't set what index PRIVATE pensions are linked to, only PUBLIC pensions.

Their intention is to do just that, according to the chancellor.

The only thing stopping them at the moment (after the usual faux 'consultation' period) is that a few pension funds actually have 'RPI' written into their trustees' deeds. Most just have a more vague reference to inflation - which the gov intend to have them define as CPI in future.

Not good if you're near retirement age and were relying on an 'inflation linked' future - given most people's belief that inflation will take off big time at some point in the future.

Edited by whoami

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Their intention is to do just that, according to the chancellor.

The only thing stopping them at the moment (after the usual faux 'consultation' period) is that a few pension funds actually have 'RPI' written into their trustees' deeds. Most just have a more vague reference to inflation - which the gov intend to have them define as CPI in future.

Not good if you're near retirement age and were relying on an 'inflation linked' future - given most people's belief that inflation will take off big time at some point in the future.

My pension is index linked, but to a maximum of 5% increase. Are other Peoples pensions uncapped?

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Not good if you're near retirement age and were relying on an 'inflation linked' future - given most people's belief that inflation will take off big time at some point in the future.

Unless you are already withdrawing a pension presumably it doesn't actually make any difference?

To clarify, when you come to purchase your annuity the pension providers will be pricing any inflation linking into their model to calculate the terms they want to offer you.

If they are linking to RPI and are worried the government might let RPI run high, they will offer much worse terms on their annuities. If they are linking to CPI which they know [technically] the government is targeting at a range of between 1-3% it will give them more predictability in their risk models and they will be able to offer better terms on their annuities.

Although, if I'm honest I'm not sure why the government need to get involved at all.. I'm sure the pension companies can decide for themselves which inflation figures they want to offer :unsure:

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Ive not seen any thread here about the governments recent anouncement of its intention to link rises in private sector pensions to CPI instead of RPI.

Have I missed it?

Tax abuser is right. The government has nothing to do with setting inflation for private sector pensions as they cannot be linked to inflation until an annuity is bought and the annuity value is based on whatever the pension was linked to whilst it was being accrued ie stockmarket for example. As the annuity companies are private, it is they who decide how and whether the monthly payout is linked to inflation.

Perhaps you are talking about the government "old age" pension that almost everyone (including private sector workers who have paid national insurance) is entitled to?

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My pension is index linked, but to a maximum of 5% increase. Are other Peoples pensions uncapped?

The annual rate of escalation of annuities in my Pension Schedule is 5.00% (but see Special Provision 1)

which reads

if on the date on which the amount of an annuity increases in accordance with paragraph (ii) or paragraph (iii) of provision 4 the cumulative rate of escalation of an annuity, based on the annual rate of escalation shown in the First Schedule exceeds the increase in the Retail Price Index published by the Department of Employment (or other index by the board of Inland Revenue in lieu of that index) during the period to which the cumulative rate applies, the increase in the Index shall be substituted for the cumulative rate. :blink:

I'm sure this explanation is quite straightforward to some, and I guess mine is capped but by how much and by what mechanism I don't haven't a clue :lol:

Edited by Solitaire

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The government doesn't set what index PRIVATE pensions are linked to, only PUBLIC pensions.

I'm afraid you are wrong here as It does it a round about way by controlling the statory minimum old company pension schemes get indexed... i'm not sure which pension legislation covers it. When you change jobs your old contibutions to your previous employers pension scheme will still increase in line with RPI up to a maximum of 5%. The intention is to change this to use the CPI instead of the RPI. It will have the net effect of reducing pensions by a few percent (cannot find the figs) over a period of time

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OK let's split this idea into two parts to try and clear it up a bit:

Private Sector Money Purchase pensions - indexation is a matter for you and your insurance company. Nothing to do with the government (other than the odd technicality).

Private Sector Final Salary pensions - indexation is a matter for the Scheme Rules. The Rules might specify RPI, but they might say "whatever the government says" in which case this probably means CPI for you going forwards.

Most private sector final salary pensions get any inflation increases capped at 5%pa. Most public sector final salary pensions get full inflation increases with no cap. Individual schemes will vary, however, and there are often significant complexities in the detail.

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The government doesn't set what index PRIVATE pensions are linked to, only PUBLIC pensions.

I'm afraid you are wrong here as It does it a round about way by controlling the statory minimum old company pension schemes get indexed... i'm not sure which pension legislation covers it. When you change jobs your old contibutions to your previous employers company pension scheme will still increase in line with RPI up to a maximum of 5%. The intention is to change this to use the CPI instead of the RPI. It will have the net effect of reducing pensions by a few percent (cannot find the figs) over a period of time

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Unless you are already withdrawing a pension presumably it doesn't actually make any difference?

To clarify, when you come to purchase your annuity the pension providers will be pricing any inflation linking into their model to calculate the terms they want to offer you.

If they are linking to RPI and are worried the government might let RPI run high, they will offer much worse terms on their annuities. If they are linking to CPI which they know [technically] the government is targeting at a range of between 1-3% it will give them more predictability in their risk models and they will be able to offer better terms on their annuities.

Although, if I'm honest I'm not sure why the government need to get involved at all.. I'm sure the pension companies can decide for themselves which inflation figures they want to offer :unsure:

Wrong

The experts from Hargreaves Lansdown, investment company , state that a £10,000 a year pension after 20 years will be worth £25,270 linked to RPI, but just £18,875 linked to CPI.

Makes a big difference . The governement getting involved and doing this is to do with looking after their top few % who make billions form the pension industry and kicking those at the bottom.

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Wrong

The experts from Hargreaves Lansdown, investment company , state that a £10,000 a year pension after 20 years will be worth £25,270 linked to RPI, but just £18,875 linked to CPI.

Makes a big difference . The governement getting involved and doing this is to do with looking after their top few % who make billions form the pension industry and kicking those at the bottom.

Again you must look at final salary schemes and money purchase schemes separately.

Changing from RPI to CPI in a final salary scheme reduces your pension in the future, as you say.

However, in a money purchase scheme, the increases are determined by whatever you bought as your annuity.

If in the future you buy a CPI-linked annuity rather than an RPI-linked annuity it should be cheaper to buy, as it would increase less. For example:

I reach age 65 and decide to use my £100,000 pension pot to buy an annuity. If i buy one linked to RPI that might get me a £3,300pa pension. However, if i buy one linked to CPI that might get me a £3,700pa pension, but that bigger pension increases less over time.

Basically, this change shouldn't make much overall difference to people in money purchase schemes, and doesn't really help anyone in the pension industry much. Those in final salary schemes may see a hit to their pension value though.

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Unless you are already withdrawing a pension presumably it doesn't actually make any difference?

Because you'll probably never see a penny anyway.

All pension fund are bankrupt. Trading insolvent. Dependant on using new members money to pay existing members.

Pyramid schemes.

Ponzi.

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Because you'll probably never see a penny anyway.

All pension fund are bankrupt. Trading insolvent. Dependant on using new members money to pay existing members.

Pyramid schemes.

Ponzi.

No many are but not all. I have a very good defered pension pot from a top company . Part final salary and part money purchase, the money purchase part has done very well over the last year.

I have 7 years and nine months ( and counting down ) untill I can get my 25% tax free lump sum and a good yearly pension. If i get to 55 and find that it is now bankrupt I will be spending the rest of my life serving a life sentance , after murdering the top brass in that company. lol.

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Because you'll probably never see a penny anyway.

All pension funds are bankrupt.

SIPP ;)

Regarding private sector final salary pensions, with the exception of Miko, does anyone else have one they are still paying into?

I thought these had been phased out almost entirely :blink:

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Because you'll probably never see a penny anyway.

All pension fund are bankrupt. Trading insolvent. Dependant on using new members money to pay existing members.

Pyramid schemes.

Ponzi.

Nonsense!!

Yes, most PUBLIC SECTOR pensions are dependant on using new members' (or strictly, taxpayers') money to pay existing members. But in the PRIVATE SECTOR pension funds are built up and drawn down as people pay into them and retire.

Sure investment returns may not be as good as were anticipated, and not everybody in final salary schemes will get 100p in the £1 of what they expect, but that's a long way different to "you'll probably never see a penny"! For money purchase schemes (like stakeholders or SIPPs) you have an individual pot of money ALLOCATED JUST TO YOU that is not used for anyone else. How can you say such an operation is "trading insolvent"?

This type of post just scares people off putting any money into any retirement savings vehicle, and if people listen to it they could end up having a miserable retirement. What they need to do is choose carefully, not ignore pensions altogether.

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Nonsense!!

Yes, most PUBLIC SECTOR pensions are dependant on using new members' (or strictly, taxpayers') money to pay existing members. But in the PRIVATE SECTOR pension funds are built up and drawn down as people pay into them and retire.

Sure investment returns may not be as good as were anticipated, and not everybody in final salary schemes will get 100p in the £1 of what they expect, but that's a long way different to "you'll probably never see a penny"! For money purchase schemes (like stakeholders or SIPPs) you have an individual pot of money ALLOCATED JUST TO YOU that is not used for anyone else. How can you say such an operation is "trading insolvent"?

This type of post just scares people off putting any money into any retirement savings vehicle, and if people listen to it they could end up having a miserable retirement. What they need to do is choose carefully, not ignore pensions altogether.

+1

Contra to popular belief not all pensions are bankrupt.

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Some interesting articles on the actuarial and pensions news sources. There is a need for cpi linked assets but presumably RPI linked gilts will be phased out or maybe terms changed?

I see index linked certificates were pulled recently.

RIP RPI

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Some interesting articles on the actuarial and pensions news sources. There is a need for cpi linked assets but presumably RPI linked gilts will be phased out or maybe terms changed?

I see index linked certificates were pulled recently.

RIP RPI

I don't see how you can change the terms of existing gilts, but i'm sure CPI linked gilts will be issued at some stage, as pension funds will want them and the government is distancing itself from RPI as you say

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