The analysis of pension schemes of FTSE 100 companies, by consultant actuaries Lane, Clark & Peacock, says changes to the small print allowing the switch will save employers in Britain £73 billion.
Organisations such as the Bank of England retain the RPI calculation for its employees’ pension calculations.
From next year, new rules requiring all but the smallest companies to either automatically enrol employees into their own pension scheme or enrol them into the Government’s top-up scheme, NEST, come into force.
The LC&P report says: “From 2012, as companies face the cost and administrative complexity of auto-enrolment, further downgrading of existing schemes is likely. In the short term, this may help the companies finances but, in the longer term, many people could find that they simply cannot afford to retire.”
Changing from RPI to the lower CPI inflation measure has meant that in the 12 months to the end of June 2011, the combined deficit of the pensions schemes of FTSE 100 companies fell from £51 billion to £19 billion. For instance, the changes saved BT £3.5 billion, BA £770 million, BAE Systems £348 million and Tesco £270 million.
This, in turn, means lower future pay-outs to their pensioners: a 45-year-old expecting RPI linkage up to retirement and in payment could lose around a quarter of the value of their pension, says the report.
The report immediately a detailed analysis by the Workplace Retirement Income Commission which said nine million people are saving too little for retirement – often through no fault of their own because of rules that would “baffle Einstein”. Some 14 million workers in this country have no pension scheme.
John McFall, who led the Commission’s research said they found: “Too many people are stuck in a complex, costly and inefficient system that relegates the consumer’s interest to second place. On top of that, they simply aren’t saving enough to secure a decent retirement.
“People need to get more bang for their buck, or they’re not going to bother with a pension. Instead they’ll end up spending today, ignoring tomorrow and scraping by in poverty on the state pension. We cannot stand by and let that happen.”
Lord McFall singled out annuities “rip-offs” for criticism. “Annuities stand out as an area sorely in need of a shake-up. People are being short-changed by the current system and it’s unfair that a miscalculation can haunt them financially for decades.”
