Pensions on Divorce: Retail Prices v Consumer Prices
Posted October 9th, 2010
The Public Sector Pension schemes – (NHS, Police, Civil Service, Local Government, Teachers, Armed Forces) are changing the way that they increase pensions in payment and revalue pensions in deferment from being linked to the Retail Price Index (RPI) to the Consumer Price Index (CPI).
RPI and CPI are measures of UK domestic inflation which are calculated by collecting a sample of prices for a selection of goods and services.
The major difference between the two measures is that RPI includes mortgage interest costs but CPI does not. Historically, this has meant that CPI has increased at a lower rate than RPI and it is therefore, expected to do so in the future.
In pension on divorce cases this change will potentially have two main knock on effects.
- It will have a negative impact on cash equivalent transfer values – the actuarial experts I have spoken with estimate that CETVs will be potentially up to 20% to 25% lower in some situations.
- It will mean that in retirement the amount of revaluation that each parties’ pension will receive will be lower.
If you would like more information on how these changes might affect you, please get in touch.
