UK's £80 Billion Pension Blunder?

Via Pension Pulse.

Ruth Sutherland and James Salmon of the London Mail report, £80bn wiped off value of pensions after inflation rate was underestimated for 12 years:

A
staggering £80billion has been wiped off the value of pensions because
the rate of inflation has been underestimated for 12 years, it emerged
last night.

Millions of pensioners
relying on occupational schemes have been left hundreds of pounds short
each year because their retirement benefits have not been increased to
reflect the full rise in inflation.

A 0.3 per cent a year underestimate of the effects of inflation over 12 years comes to 4 per cent.

John
Ralfe, one of the UK’s leading independent pensions consultants, said:
‘In simple terms, for every £100 of pension you are receiving, you
should be getting £104.’

Details of the
blunder come just days after the Bank of England admitted that
inflation this year is likely to rise from 4 to 5 per cent.

High
inflation can be devastating to pensioners because their incomes fail
to keep pace with rising costs and the real value of their savings
dwindles.

The Bank admitted to the
miscalculation in its quarterly Inflation Report, saying the Consumer
Price Inflation should have been 0.3 per cent a year higher between
1997 and 2009.

The figure was lower because the Office for
National Statistics failed to take into account changes in the prices
of clothing and shoes which were affected by hefty discounting in the
sales.

The ONS changed the way it records the prices of clothes and shoes in January last year.

The
impact on Retail Price Inflation would have been even greater but the
Bank did not disclose how much. Most pensions are linked to the RPI and
rise in line with that figure.

The Bank said the miscalculation
was the responsibility of the ONS. It means that for 12 years, the
increases to pensions for inflation have not reflected the true rise in
the cost of living.

More than 17million people were either pensioners or deferred pensioners in final salary schemes in 2009 and could be affected.

John
Broome Saunders, actuarial director at BDO Investment Management,
said: ‘If you went to every final salary pension scheme in the UK and
recalculated the benefits using the right inflation figure, you would
increase the total value of pensions by around £80billion.

‘This
is pretty shocking stuff at a time when people are worried about their
pensions. It is certainly very worrying that the government
statisticians didn’t get this right.

‘It is yet another thing reducing people’s confidence in the Government’s management of pensions.’

Mr
Saunders said the value of entitlements to final salary pensions from
employers, the public sector and local government was around
£2trillion. The 0.3 per cent underestimate over 12 years comes to 4 per
cent, or £80billon.

The true impact
on pensions may be even greater because most are increased either in
line with RPI or earnings, both of which are normally higher than the
CPI figure.

John Prior, a pension consultant with Punter
Southall, said: ‘This will affect anyone who has been in a final salary
scheme over that period.

‘It includes people who are already
retired and deferred members, or people who have left a company but not
yet drawn their pension.

‘It would indirectly affect current employees because their pay rises and pensions may have been less.’

The ONS said: ‘This is not a blunder. Our figures aren’t wrong – we have simply improved the way we calculate inflation.’

But
Laith Khalaf, from financial advisers Hargreaves Lansdown, said:
‘Pensioners have a tough time battling inflation as it is. They will be
up in arms that their income has been held back in this way.’

Simply
improved the way you calculate inflation? What a joke! Anyone who's
been paying higher gas prices, higher food prices and higher clothing
prices doesn't need some government statistician telling them that
inflation is running higher than the 'official' government figures.

According to the states the Bank of England's latest quarterly Inflation Report,
the ONS "picked up seasonal falls in prices during the winter and
summer sales, but did not fully capture the recovery in prices after
sales had finished". The study looked at clothing prices in Euro-area
countries and estimated the impact on the UK's consumer prices index
(CPI) if more accurate clothing prices had been included. The report
suggested that there would have been an even larger impact on the other
headline inflation index, the retail prices index (RPI).

Mark Reynolds of the Express reports, Millions Lose in Pensions Blunder:

Pensioners were cheated out of £80billion during 12 years of Labour rule, it was revealed yesterday.

In a bitter blow to millions, the Bank of England’s February inflation
report showed the Consumer Prices Index between 1997 and 2009 was 0.3
per cent a year higher than official figures had previously stated.

Experts say this miscalculation by the Office for National Statistics
cost the average final salary pension holder hundreds of pounds a year.

Outraged pension groups said there was currently no way for any of the eight million people affected to claim compensation.

Dr Ros Altmann, director general of the over-50s group Saga, complained: “How much pain do pensioners have to endure?”

John Broome Saunders, actuarial director at BDO Investment Management,
said: “Had the inflation calculation been done correctly, many final
salary scheme members would now find themselves entitled to a pension
around four per cent higher.

“This doesn’t just affect pensioners – deferred scheme members have also been denied a similar level of increase.”

Many pension schemes link payouts to the Retail Price Index, which is directly affected by the level of CPI.

Richard McIndoe, head of pensions at Strathclyde Pension Fund, said:
“Pensioners will feel aggrieved when they see this, and they think they
should have received four per cent more.

“In reality, however, there is not much to be done about it. The
official inflation figure is still the official inflation figure.”
Joanne Segars, chief executive of the National Association of Pension
Funds, said: “It’s true that state and occupational pensions would have
been higher if this new measure had been applied. But all that pension
schemes can do is work with the figures they have been given.”

The CPI error stemmed from the
misreporting of clothing prices. The inflation report said: “Previous
collection methods may have biased down estimates of CPI clothing
prices.”

Last night a spokesman for the Office for National Statistics said: “ONS
has improved its methods for collecting clothing prices as part of its
development programme but this does not mean that there were measurement
errors or misreporting in the past. The Bank of England agrees with ONS
that the improved collection practices for clothing better reflect
current consumer behaviour.”

But Saga’s Dr Altmann said much now needed to be done to protect pensioners.



She said: “The Bank of England needs to
get a grip and show its determination to combat the ravages of
inflation on savers and signal its intent to start raising interest
rates.



“At the moment savers and pensioners are being hit by low interest rates and high inflation, and Saga is deeply concerned.

“We believe that a small rise in interest rates would send a positive
signal to increasingly desperate savers, without having an adverse
effect on the economy.

“The sooner the Bank acts, the better.

“Pensioners have already been hit hard by the economic crisis. They are
suffering from extremely low interest rates and very high inflation,
which means that the value of their savings is being eroded.”

Falls in stock markets and rising inflation have led to a typical
65-year-old now entering retirement with a private pension of just
£7,666 a year.

This is almost half the officially recognised income needed to maintain an adequate standard of living.

We'll see if the Bank of England starts
raising rates anytime soon. Like most central banks, they're more
concerned about banks than pensioners. And remember, the name of the
game remains reflate risk assets and inflate your way out of this
financial mess.

Finally, the BBC reports that it is unlikely that members of the public could reclaim any lost money or ask for an increase in pension or benefit income:

The
National Association of Pension Funds pointed out that pension
increases are dependent on published inflation rates, which remain as
they were.

"It's a theoretical argument," explained Ros Altmann, Saga Group director general.

"You would have to prove that this is the only element of inflation that needed to be changed," she said.

The
policy of the Department for Work and Pensions is that it will only
change benefit rates if the official inflation figure is recalculated
and republished.

A DWP spokesperson said: "Inflation
figures are determined by the ONS who regularly do work to improve
their methods of calculation.

"Any changes in methodology do not mean that previous inflation rates were incorrect."

But
changes in methodology which are in line with what the public has known
for years, namely, that inflation is grossly underestimated, only proves
that pensioners and workers are getting squeezed on all fronts. After
all, wages and pensions are linked to CPI. Welcome to the new normal,
which is pretty much the same as the old normal except dressed in
different clothing.

Comments

[dick cheneys ghost]

And barclays bank pays virually no taxes. 

http://nakedempire.wordpress.com/

[Azannoth]

I don't think the Brits have the balls to stand up for themselves they will go quietly into the anals of history

[bankruptcylawyer]

the u.k. is ten times more fraudulent than the u.s., it is what happens when there is nothing left of an economy but fraud and a foreign superpower to bully the world around for you. 

look at this: u.s./u.k. fraud by a lawfirm infiltrating everything...police, government, etc....

there is little doubt in my mind that this investigation by the fbi will be quashed. you won't be hearing about it in american media in any case. carroll maryland trust-hm treasury ....slaughter and may

http://www.zimbio.com/HM+Queen+Elizabeth+II/articles/d4WhTwggyXP/HM+Trea...

[covert]

very similar retirement scam to that of america. remember the burecrats retirement fund lately?

http://covert2.wordpress.com