Defined Benefit  

Index change could shave 20% off pension incomes

Tom McPhail, head of policy at Hargreaves Lansdown, said: "Anyone who has joined a pension scheme or bought an annuity expecting to receive RPI linked increases to their income, should continue to receive those benefits in line with the contract they bought into.

“Arguing that they’ll still receive an RPI-linked benefit but then changing the definition of what RPI means, is a bit of Alice in Wonderland logic; it looks like it could be an April Fool but for anyone facing the prospect of losing up to 21 per cent of the value of their pension, this is no laughing matter.”

To avoid this Mr McPhail suggested the government could continue to calculate and publish a legacy RPI for existing contracts, so that anyone receiving contractual benefits today could continue to enjoy the current calculation methodology. 

They could then use the new calculation method for all contractual obligations entered into after a specified change date, he said. 

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