Age UK backs official pensioner inflation index calls
Charity Age UK has backed calls for a pensioner-specific inflation index, in the wake of Office for National Statistics consultations on the two indices that determine pension increases.
This follows the ONS attributing a 50 basis point monthly rise in the consumer price index to the impact of rising university tuition fees.
The ONS analysis gave rise to questions on the suitability of existing indices for measuring changes in the cost of living for pensioners.
They are spending a lot of time on consultations to change RPI and CPI, why not on an index like this?
The state pension is linked to CPI, but many schemes are linked to the retail price index, which is also under ONS consultation.
Gordon Morris, managing director of the charity for older people, said he supported the formation of a pensioner-specific inflation index.
“It’s clear that both RPI and CPI, as they are, are not good measures of inflation for those already in retirement, and that has very negative effects on pensioners,” he said.
On top of student fees’ impact on CPI, Morris pointed out RPI includes measures of loan repayments that form less of a proportion of pensioner spending.
Age UK calculates its own measure of inflation, “silver RPI”, which actually puts inflation at 2.35 per cent over the past year, lower than the wider population’s 2.65 per cent. But the charity said this may only be a “brief respite” from its usual trend above headline RPI.
Morris added: “I absolutely support the creation of a separate, official ONS index for pensioners. They are spending a lot of time on consultations to change RPI and CPI, why not on an index like this, which is getting more important with an ageing population?”
Provider Hargreaves Lansdown has called for the creation of a pensioner-specific inflation index, its research concluding that a dedicated index would be up to 0.4 percentage points higher than current RPI.
This could add up to £13,757 for a typical household during a 20-year retirement.
Tom McPhail, head of pensions research, said: “Pensioners’ expenditure patterns are not well reflected by the inflation measures currently used by schemes. Why not create one appropriate index, which would be adopted by annuity providers, schemes and the government?”
RPI and silver RPI are expected to rise further in the next two months with higher utility prices. Pensioners typically spend more of their income on energy.
Mervyn King, governor of the Bank of England, said last week that he expected inflation to remain above the 2 per cent target until the second half of 2013.
The ONS could not be reached for comment, but is holding further consultations on the RPI formula effect in Belfast and Cardiff in the next two weeks.