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£80bn wiped off value of pensions after UK inflation rate was underestimated
for 12 years
By Ruth Sutherland and James Salmon
Last updated at 3:05 AM on 19th February
2011
A staggering £80billion has been wiped off the value of pensions because the
rate of inflation has been underestimated for 12 years, it emerged last
night.
Millions of pensioners relying on occupational schemes have been left
hundreds of pounds short each year because their retirement benefits have not
been increased to reflect the full rise in inflation.
A 0.3 per cent a year underestimate of the effects of inflation over 12 years
comes to 4 per cent.
Falling short: Millions of pensioners have been left short
because their retirement benefits do not reflect the full rise in inflation
rates
John Ralfe, one of the UK’s leading independent pensions consultants, said:
‘In simple terms, for every £100 of pension you are receiving, you should be
getting £104.’
Details of the blunder come just days after the Bank of England admitted that
inflation this year is likely to rise from 4 to 5 per cent.
High inflation can be devastating to pensioners because their incomes fail to
keep pace with rising costs and the real value of their savings dwindles.
More...
The Bank admitted to the miscalculation in its quarterly Inflation Report,
saying the Consumer Price Inflation should have been 0.3 per cent a year higher
between 1997 and 2009.
The figure was lower because the Office for National Statistics failed to
take into account changes in the prices of clothing and shoes which were
affected by hefty discounting in the sales.
The ONS changed the way it records the prices of clothes and shoes in January
last year.
Tough time: Expert Laith Khalaf said that pensioners would
be up in arms that their income has been held back
The impact on Retail Price Inflation would have been even greater but the
Bank did not disclose how much. Most pensions are linked to the RPI and rise in
line with that figure.
The Bank said the miscalculation was the responsibility of the ONS. It means
that for 12 years, the increases to pensions for inflation have not reflected
the true rise in the cost of living.
More than 17million people were either pensioners or deferred pensioners in
final salary schemes in 2009 and could be affected.
John Broome Saunders, actuarial director at BDO Investment Management, said:
‘If you went to every final salary pension scheme in the UK and recalculated the
benefits using the right inflation figure, you would increase the total value of
pensions by around £80billion.
‘This is pretty shocking stuff at a time when people are worried about their
pensions. It is certainly very worrying that the government statisticians
didn’t get this right.
‘It is yet another thing reducing people’s confidence in the Government’s
management of pensions.’
Mr Saunders said the value of entitlements to final salary pensions from
employers, the public sector and local government was around £2trillion. The 0.3
per cent underestimate over 12 years comes to 4 per cent, or £80billon.
The true impact on pensions may be even greater because most are increased
either in line with RPI or earnings, both of which are normally higher than the
CPI figure.
John Prior, a pension consultant with Punter Southall, said: ‘This will
affect anyone who has been in a final salary scheme over that period.
‘It includes people who are already retired and deferred members, or people
who have left a company but not yet drawn their pension.
‘It would indirectly affect current employees because their pay rises and
pensions may have been less.’
The ONS said: ‘This is not a blunder. Our figures aren’t wrong – we have
simply improved the way we calculate inflation.’
But Laith Khalaf, from financial advisers Hargreaves Lansdown, said:
‘Pensioners have a tough time battling inflation as it is. They will be up in
arms that their income has been held back in this way.’
Read
more: http://www.dailymail.co.uk/news/art...te-underestimated-12-years.html#ixzz1EP7ZOXjI
for 12 years
By Ruth Sutherland and James Salmon
Last updated at 3:05 AM on 19th February
2011
A staggering £80billion has been wiped off the value of pensions because the
rate of inflation has been underestimated for 12 years, it emerged last
night.
Millions of pensioners relying on occupational schemes have been left
hundreds of pounds short each year because their retirement benefits have not
been increased to reflect the full rise in inflation.
A 0.3 per cent a year underestimate of the effects of inflation over 12 years
comes to 4 per cent.
Falling short: Millions of pensioners have been left short
because their retirement benefits do not reflect the full rise in inflation
rates
John Ralfe, one of the UK’s leading independent pensions consultants, said:
‘In simple terms, for every £100 of pension you are receiving, you should be
getting £104.’
Details of the blunder come just days after the Bank of England admitted that
inflation this year is likely to rise from 4 to 5 per cent.
High inflation can be devastating to pensioners because their incomes fail to
keep pace with rising costs and the real value of their savings dwindles.
More...
The Bank admitted to the miscalculation in its quarterly Inflation Report,
saying the Consumer Price Inflation should have been 0.3 per cent a year higher
between 1997 and 2009.
The figure was lower because the Office for National Statistics failed to
take into account changes in the prices of clothing and shoes which were
affected by hefty discounting in the sales.
The ONS changed the way it records the prices of clothes and shoes in January
last year.
Tough time: Expert Laith Khalaf said that pensioners would
be up in arms that their income has been held back
The impact on Retail Price Inflation would have been even greater but the
Bank did not disclose how much. Most pensions are linked to the RPI and rise in
line with that figure.
The Bank said the miscalculation was the responsibility of the ONS. It means
that for 12 years, the increases to pensions for inflation have not reflected
the true rise in the cost of living.
More than 17million people were either pensioners or deferred pensioners in
final salary schemes in 2009 and could be affected.
John Broome Saunders, actuarial director at BDO Investment Management, said:
‘If you went to every final salary pension scheme in the UK and recalculated the
benefits using the right inflation figure, you would increase the total value of
pensions by around £80billion.
‘This is pretty shocking stuff at a time when people are worried about their
pensions. It is certainly very worrying that the government statisticians
didn’t get this right.
‘It is yet another thing reducing people’s confidence in the Government’s
management of pensions.’
Mr Saunders said the value of entitlements to final salary pensions from
employers, the public sector and local government was around £2trillion. The 0.3
per cent underestimate over 12 years comes to 4 per cent, or £80billon.
The true impact on pensions may be even greater because most are increased
either in line with RPI or earnings, both of which are normally higher than the
CPI figure.
John Prior, a pension consultant with Punter Southall, said: ‘This will
affect anyone who has been in a final salary scheme over that period.
‘It includes people who are already retired and deferred members, or people
who have left a company but not yet drawn their pension.
‘It would indirectly affect current employees because their pay rises and
pensions may have been less.’
The ONS said: ‘This is not a blunder. Our figures aren’t wrong – we have
simply improved the way we calculate inflation.’
But Laith Khalaf, from financial advisers Hargreaves Lansdown, said:
‘Pensioners have a tough time battling inflation as it is. They will be up in
arms that their income has been held back in this way.’
Read
more: http://www.dailymail.co.uk/news/art...te-underestimated-12-years.html#ixzz1EP7ZOXjI