14 Jan, 2013
RPI could hit pensions -
deVere featured on Financial Times
The deVere Group was featured on the Financial Times today as CEO
Nigel Green warned savers that the decision not to effectively
reduce RPI is likely to accelerate the number of pension schemes
that switch indexation from RPI to CPI.
Consequently, millions of people saving into private sector
pensions could face significant cuts in their retirement income as
the door opens for schemes to use a less generous inflation
Click here to read the full article on Financial Times.
On Thursday, 10th January 2013, the Office for National Statistics
is set to publish its recommendations regarding the changes to the
Retail Price Index. Meanwhile,
Nigel Green, the chief executive of a leading financial group,
is warning pension savers worldwide that a change to the way the
inflation measure is calculated means another hit for their
Industry experts indeed expect the ONS to announce a change in the
formula to calculate the RPI in order to bring it in line with the
Consumer Price Index.
The CPI is typically between 0.5% and 1% lower than the RPI.
Compounded over years, this makes a big difference for pension
savers. If an individual retires at 65 and lives until they are 85,
the change from RPI to CPI could therefore lead to a reduction in
their retirement income by a fifth.
the economic voice, Green warned workers on the brink of their
retirement years that if the recommendations are implemented by the
UK Chancellor George Osborne, it would be 'another hammer blow for
pension holders' who are still in schemes that offer RPI increases.
The change to CPI will thus mean that those who put money aside in
a UK inflation-linked scheme in pursuit of being able to enjoy a
comfortable retirement, will see their annual pension increases
Moreover, if government gilts are affected by the change, deficits
in company pension schemes would drastically increase since they
are 50% invested in gilts on average - another blow for company
pension scheme holders.
Switch to CPI could wreak havoc UK
The latest government move to link pensions to inflation via the
CPI index could 'wreak havoc' UK pension funds and as such, savers
need to urgently act in order to mitigate the effects.
The Chief Executive of the deVere Group, Nigel Green, is warning
that very few Britons are aware that if pension funds are linked to
Consumer Prices Index it could wreak havoc their retirement
savings. This is because CPI is generally lower than RPI which
means that each year individuals with a final salary scheme will
receive less pension payments.
Mature Times quoted the expert financial advisory as saying
that when compounded over years, this makes a big difference. 'If
an individual retires at 65 and lives until they are 85, the change
from RPI to CPI could lead to a reduction in their retirement
income by a fifth'.
Moreover, speaking to the
Financial Times, Green said that the gloomy economic outlook
has encouraged investors to pile into bonds as they are perceived
to be safer than other asset classes. However, with gilt yields at
record lows, individuals approaching retirement need to rethink
their investment strategy to avoid the risk of getting trapped in
poor-performing bond funds.
As such, it is imperative for pension savers to rethink how they
could mitigate the negative impact of the index switchover. Pension
holders should consider transferring their scheme into a defined
contribution scheme, such as a SIPP in the
UK, or a QROPS
if they live outside of the UK. Such schemes are personal
arrangements that allow the individual to benefit from greater
investment performance and flexibility.
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