Inflation link to change for private sector pensions

Date: 9 July 2010

The government has proposed changing the way that increases are applied to private sector pensions.

This means millions of people would be likely to receive lower increases to their pensions.

At the moment, pensions are linked to rises in the Retail Price Index – a measure of price inflation which tracks the rise in the price of a typical basket of consumer goods and the rise in housing costs.

The government plans to change the measure of inflation that they use for the purposes of increasing state pensions and public sector pensions from RPI to the Consumer Price Index instead – and they want to extend this to include private sector pensions too.

The CPI is different to RPI in that it doesn’t include the rise in housing costs and is also worked out differently.

Pension experts predict that because of the different way that CPI is calculated, future pension increases will be an average 0.5% lower every year.