The government has announced plans to link state retirement pensions to the Consumer Prices Index (CPI), rather than the Retail Prices Index (RPI), sparking outrage among pensioners’ groups and concern for many people currently saving for retirement.
The CPI and RPI are both measures of inflation, so the measures will affect how much a pensioner receive each year. CPI is generally lower than RPI. The most recent figures for both indexes, released in October 2010, showed that RPI increased by 4.5% across the previous year, while CPI only went up by 3.2%. This could leave thousands of elderly people far worse off than they anticipated and wondering what alternative pension options they have; a situation the country’s leading elderly charity Age UK describes as “worrying”.
So why has the government proposed the measures?
Minister for Pensions Steve Webb has justified the government’s position, arguing that CPI is a far more appropriate index to use when measuring the cost of living of pensioners. To further his point, he emphasised that RPI includes a measure of housing costs which makes it unsuitable as a pension measure, since over 70% of pensioners are house owners with no mortgage.
The move will also save the government millions of pounds each year and is intended to be seen as one in a series of austerity cuts, aiming to spread the country’s financial burden across society.
Critics, including the Shadow Pensions Minister Rachel Reeve and the Director General of Saga, have responded that there is no proof of Webb’s claim that CPI is a “more appropriate” measure for people’s retirement income.