CPI may be extended to private pension schemes under government plans


CPI could be made easier for private pensions to adopt.

Statutory power changes are planned for private sector pensions to allow for the CPI to be introduced.

Private sector pensions may be able to use the Consumer Prices Index (CPI) to calculate pension funds instead of the Retail Prices Index (RPI) under new government legislation.

This summer it was announced that public sector pension schemes would use the CPI measure instead of the RPI to save billions of pounds each year – the CPI rises at a slower rate than the RPI meaning that the government would have to pay out less cash to pensioners each month.

At the time, pensions minister Steve Webb said: “The government believes the CPI provides a more appropriate measure of pension recipients’ inflation experiences“.

This option may be extended to private sector pension schemes under the new plans.

A DWP spokeswoman said: “We are planning to consult on whether there is a case for introducing legislation to make it easier for schemes to adopt CPI as their inflation measure. Most pension schemes already have powers to make changes to their rules and it would be their decision whether to adopt CPI in the future”.

The inflation-proofing changes introduced for state pensions had led to concerns that the government may introduce a law that would automatically make it so that all pension schemes, including ones in the private sector, would be forced to use the CPI. However, the DWP has stressed that this will not occur: “no scheme will be forced to change to CPI and they would continue to be free to pay more”.

A government spokesman said: “A minority of schemes do not have rule modification powers and the government is considering whether, for consistency, a statutory power should be introduced to allow them to make the change to use CPI in future”.