CPI pensions link to hit 80% of schemes

EIGHTY per cent of pension schemes will be affected by the government's change to the consumer prices index (CPI) as a measure of price inflation for regulating occupational pension schemes, according to a survey by KPMG.

The change will impact on current pensioners, but mainly on those with "deferred" pensions where individuals have left a pension behind with a former employer but have not yet retired.

Eight in every ten deferred pensions will feel the effect, as entitlements will now be revalued according to CPI up to the individual's retirement. Twenty per cent of current pensions would also be hit by the change.

The latest ONS data states that there are 6.7 million deferred pensions in private sector occupational schemes, and if the survey data is extrapolated to assume 80 per cent of them are affected by the change, that amounts to 5.36 million deferred pensions. However, the number of individuals is smaller, as some will have pensions due from multiple schemes.

The same data shows that there are five million pensions in payment from occupational schemes, so if the survey results are extrapolated again, 20 per cent of them would see lower increases in future, which would affect one million pensions.

Donald Fleming, pensions partner at KPMG in Scotland, said: "It's a small-print lottery as to how schemes are affected."

The survey data, coupled with additional information issued by the government, leads KPMG to estimate that these changes are likely to amount to a reduction in private sector pension deficits of around 45 billion.