The Tories are robbing our pensions by stealth

An obscure change to the Retail Price Index (RPI) means big reductions in many pensions and downward pressure on pay.

While everyone is distracted by the Covid crisis, the Tories have sneaked through an obscure change to the Retail Price Index (RPI) that means big reductions in many pensions and downward pressure on pay. Unite activist Ian Allinson explains what is going on.

Image is a cartoon showing Boris Johnson peeking under a blindfold while bashing a pinata that reads "PENSIONS", money pouring from it as it breaks.
Credit: Artivists at Work

In recent years, many in the public and private sectors have seen the closure of pension schemes which guarantee a defined benefit, usually based on your final salary, and their replacement by less generous ‘defined contribution’ schemes, moving the risk of a scheme’s investments performing badly from the employer onto workers. But it has generally been assumed that any pension you have already accrued is safe (financial collapses aside). In November, Chancellor Rishi Sunak confirmed a change to how the Retail Price Index (RPI) is calculated that will cost current and future pensioners billions of pounds. RPI is one of a number of indices which try to estimate inflation – how fast prices are rising.

Nearly two-thirds of private sector defined benefit pension schemes link pension increases directly to RPI. The UK government has announced that it will change how RPI is calculated to be in line with a version of the Consumer Prices Index (CPI) from 2030. The TUC calculated that this had been on average 1% lower than RPI over the last 10 years, so the change means pensions will rise much more slowly than workers expected when earning and paying into pensions. The TUC estimate the change will take £14,000 off the average woman worker in a private sector pension scheme and about £11,000 for the average male worker. Some would be hit much harder. The Communication Workers’ Union (CWU) estimates that 100,000 members in one Royal Mail scheme will lose around 12% of the value of their pension.

The government has been ‘index shopping’ for years, using the lower CPI to calculate money to pay out in benefits, but the higher RPI when it collects money through student loans and rail fares. By knocking 1% off RPI, the index traditionally used for pay bargaining, the government is helping employers hold down wages. Unions are responding by looking for other indices, but this means an uphill struggle to get employers to use a new index, instead of continuing the defence of the use of RPI which had so far been generally successful. The success or failure of unions in pay bargaining has a ripple effect on pay rates across much of the labour market. The attack was piloted against people on state benefits and is now being rolled out to millions of workers, which is another illustration of why workers have a stake in fighting for better treatment for those not in paid work.

All inflation indices are estimates. They track the price of a particular ‘basket’ of goods and services which aims to be representative of the spending of a particular population – each of us experiences different inflation rates depending on what we spend our money on. The basket for the version of CPI the government is using, called CPIH, doesn’t include owner-occupier housing costs, but does include the spending of the richest 4% and foreign tourists. The Royal Statistical Society strongly disagrees with the planned changes, as different indices are suited for different purposes. Ironically, the Tories are adopting an index introduced for macroeconomic planning as a result of EU regulations, when most EU countries maintain their own national indices.

Unions opposed the change, and the delay to 2030 is partly a result of this, but they failed to publicise this huge attack or to mobilise opposition to it. The government has intervened to cut the pensions of millions of workers by billions of pounds and handed a matching saving to employers.

Though the government has the power to fiddle the figures, they can’t stop us fighting for decent pay, pensions and benefits.

1 COMMENT

  1. Clarification:
    The article says CPI-H “doesn’t include owner-occupier housing costs” – it would be more accurate to say CPI-H “doesn’t measure owner-occupier housing costs” – it estimates them from rental costs, which is much less reliable than RPI which actually measures them.

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