RIP RPI – pensions in the cross-hairs?

The Treasury has lined up the Retail Price Index (RPI) for a 2030 retirement. In its place will be the much wordier, and ultimately lesser in value, Consumer Price Index + owner occupiers’ housing cost (CPIH). The change has brought a modicum of grumbling, predominantly because of the negative impact on those with defined benefit (DB) pensions.

As with the NHS Pension, other DB pensions undergo annual revaluation to ensure that their value isn’t too sorely eroded by inflation. For a number of DB pensions, the amount of revaluation is linked to the RPI. As the (lesser) CPIH will be used from 2030, people’s pensions won’t grow as quickly and therefore will be worth less when they retire.

You might argue that the change for those with affected pensions is irrelevant, as CPIH is the measure of inflation. Therefore the value of these pensions will still rise with inflation and won’t succumb to its sapping effect. Two points in rebuttal of this. Firstly, I’ve made clear my thoughts on true inflation before. Secondly, I’d still be miffed if my pension was being revalued by a lesser amount than it had been previously.

PR hot potato*

The NHS Pension is not impacted in the same way, as its revaluation is by Treasury Orders + 1.5%, not RPI. Although Treasury Orders can in theory be whatever HM Treasury decides, it is often near enough the Consumer Price Index (CPI; not to be confused with the CPIH!). This exempts the NHS Pension from the effects of the aforementioned RPI – to – CPIH changeover.

Although Thursday clapping is no longer de rigueur, and windows are noticeably deplete of rainbows, the NHS is still an apple in the eye of many as Coronavirus Wave II: Covid Strikes Back continues. Healthcare workers have been immune to the recently announced Public Sector pay freeze; some may see a pay rise. Government spin doctors have probably decided mixing the healthcare workforce up in this latest fiscal rejig is a PR battle better not fought. ‘Tis better not to bite the hand that heals you.

It would, however, to be naive to think that healthcare professionals will exhibit this immunity indefinitely. No, the NHS is a black hole of public spending that won’t go away. It mayn’t be in the next few years, but at some point in the future the axe will fall on the pensions and/or salaries of NHS workers.

Many of those reading will be 2015 NHS Pension scheme members. This is the third and least generous iteration of the pension in the last 20 years. A future reworking of the numbers seems inevitable. Only the purest of optimists could envisage a potential rehash improving the conditions of the scheme.

More legs to stand on

I think that changes to the NHS Pension are a certainty. After all, the government has to pay for all those nepotistic PPE contracts somehow. It makes, in my opinion, putting all your retirement eggs in the NHS Pension basket a dangerous game to play.

Don’t get me wrong, I still think it’s a valuable asset to have and I’ll continue to be a member of the scheme. I am, however, diversifying my post-retirement funding in much the same way as I keep my investment portfolio diversified. It’s not all NHS Pension. It’s not all SIPP. It’s not all ISA. It’s not all rare, mint condition Beanie Babies. It’s a blend; a multi-faceted backstop designed not just to maximise returns, but to be a resilient and flexible strategy as well.

TTFN,

Mr. MedFI


*For those in the medical field, I’m sure the phrase PR hot potato brings with it a hilarious mental image.

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