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Welfare Reform on the Web (January 2011): Pensions - UK

Move to cut pensions is abandoned over fears of backlash

J. Kirkup

Daily Telegraph, Dec. 9th 2010, p. 16

Reports that the government had listened to concerns about allowing company pension schemes to use the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) when calculating annual increases in payments to retired members and had decided not to go ahead. The RPI, currently at 4.5%, includes mortgage costs and is almost always higher than the CPI, which is running at 3.2% at present. For someone who retired at 60 and lived to 80, the change would mean that their pension would be a fifth lower than if it had increased in line with RPI.

(See also Daily Telegraph, Dec. 8th 2010, p. 1 + 2)

New pension rules benefit only the wealthy

J. Kirkup

Daily Telegraph, Dec. 10th 2010, p. 4

The government has unveiled new rules scrapping the legal obligation for older people to use their private pension pots to buy an annuity before their 75th birthday. People would be able to cash in their pension pot and invest or spend the money as they thought fit. However, conditions attached to the rules mean that only people with an income of 20,000 per year would gain complete freedom over their use of their pension pot. The new rules, which will come into force in April 2011, mean that most people will still be forced to buy an annuity.

To-morrow's investor: building the consensus for a people's pension in Britain

D. Pitt-Watson

Royal Society for the Encouragement of Arts, Manufactures and Commerce, 2010

This report shows that savers are losing up to three quarters of their pensions in little-known fees charged by the investment funds that manage their contributions. Private pensions in Britain pay out on average only half as much retirement income as equivalent schemes in Europe, with hidden costs blighting the retirement plans of millions. While the annual levy may appear small, its effect after decades of saving is substantial. This is because the fee is calculated annually as a percentage of the total amount in the pension fund. Each year, therefore, the amount levied increases. Many of the costs involved in pensions are generated by people switching between schemes. These could be avoided if there were a limited number of very large providers in the marketplace, producing economies of scale. The report concludes that the system of private pension provision in Britain is not fit for purpose and in urgent need of reform.


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