Pensions Index Update

My Ref: MRP32/1

15^th December 2010

Circular No. NP/229/10

To: The Secretary

All Branches & Regional Councils

Dear Colleague,

INDEXATION OF PENSIONS

On Wednesday 8 December 2010 the Department for Work and Pensions released an industry wide RPI/CPI consultation paper. This has provided some clarification on the Government’s plans to redefine the way in which statutory minimum increases are applied to pensions (in particular the revaluation of deferred pensions to retirement and pensions in payment).

This follows the announcement on 8 July 2010 made by the Minister of State for Pensions, Steve Webb, which stated the Government’s intentions to link private sector pension payments to the Consumer Price Index (“CPI”) rather than the Retail Prices Index (“RPI”). A similar change to public sector pensions was announced in the Chancellor’s budget statement earlier in the year.

Both RPI and CPI are measures of inflation published by the Office for National Statistics but both are calculated in different ways. Historically, this has led to inflation measured on the RPI index being far greater than that of CPI. RPI for the twelve months to November 2010 is 4.7%, up from 4.5% in October. The Government’s preferred measure of inflation, the Consumer Price Index, also announced today is 3.3% up from 3.2% in October.

The Government’s own inflationary forecast shows RPI increasing by 20.3% between 2010 and 2015, while CPI increases at a slower rate of 13.0% during the same period, a shortfall of 7.3%. The proposal to use CPI will clearly affect both those who have retired and those who have yet to retire.

The RMT are totally opposed to the Government’s plan to change indexation for past and future pension accruals. What this will mean to pension scheme members and pensioners is their pension entitlement being worth less than they were promised when they contributed. We believe it is an attack on workers deferred pay which will result in pension scheme members being unable to retire with an adequate pension and consequently result in them being forced to claim benefits in retirement.

Although the Government has presently ‘shied’ away from introducing overriding legislation to force pension schemes to adopt the lower inflationary measurement of CPI, it is clear that this issue is far from finished. The Government has opted at the present time to publish a consultation paper which the RMT will respond to.

For your information please find enclosed with this circular a letter I have sent to the RPS Trustee Board Chairman and also a letter which has been sent by Brendan Barber the General Secretary of the TUC to George Osborne MP.

In the mean time the RMT will continue to campaign against the governments’ proposal and will keep you informed of any developments.

Yours sincerely,

B. Crow

General Secretary

Enc.