Millions of pension savers could lose £73k if Rishi Sunak fiddles with inflation

Over 10 million savers could lose 19pc of their pension due to a calculation change

Millions of savers could see £73,000 wiped off the value of their gold-plated “final salary” pension if the Government presses ahead tomorrow with a change in the way inflation is calculated.

The Chancellor is likely to announce plans that could change in the inflation measure and wipe 20pc of the value off defined benefit pension pots for more than 10 million savers.  

The Government will deliver its final decision on how inflation should be measured following the UK Statistics Authority request the country should ditch the Retail Price Index and only use the Consumer Prices Index that includes owner-occupiers housing costs, known as CPIH.

The difference between how the two indices are calculated has meant RPI was 1 percentage point higher than CPIH, on average.

Switching to the lower measure would significantly reduce the amount of income that members of "final salary" pension schemes receive. Annual pension payments are routinely upgraded by RPI.

A typical 55-year-old with a “defined benefit” scheme pension would lose £73,135 on the cash value of their pension, according to figures calculated for Telegraph Money by Insight Investment.

This corresponds to a 19pc drop if the pensioner received the average annual pension of £8,000.

A 65-year-old pensioner who has retired on £8,000 per year would be £33,301 worse off over the course of their retirement if CPIH replaces RPI.

If enacted, the change would happen after 2025. However, Jos Vermeulen of Insight said pension funds, which tend to support payments to pensioners by owning Government debt, would end up losing out long before this.

The change would be a boon for millions of commuters and students in Britain. They would benefit from cheaper rail tickets and a lower interest rates on student debt as these would increase via CPIH instead of RPI.

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