Pension pots are particularly important to a significant number of Britons, as these are key for securing an enjoyable retirement. While there are many pension arrangements available, the sum people receive at the end of their working life is vital. New research, however, has shown 10 million people in the UK could stand to lose out substantially under plans to reform pensions.
Those who currently possess traditional final salary style retirement benefits may lose thousands of pounds if reforms occur.
Final salary schemes are a form of defined benefit pension scheme.
Offered by employers, Britons can expect to receive benefits based on their earnings, alongside the length of their membership in the scheme.
The Pension Advisory Service states: “It’s important to note that ‘final salary’ doesn’t necessarily mean the actual salary that you’re earning at the time you retire and draw your benefits.”
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Insight Investment, an asset management company, has now analysed the information presented.
It has said linking defined benefit pension increases to the Consumer Prices Index with Housing costs (CPIH) could be disastrous for the pension pots of those in such schemes.
Rob Gall, head of market strategy at Insight Investment commented on the group’s findings.
He said: “Insight Investment’s analysis shows that a member of a defined benefit pension scheme who is retiring at age 65 on a starting income of £20,000 could lose in excess of £30,000 over the course of their retirement.
“If RPI is simply aligned with CPIH, we believe this would significantly reduce the pension fund benefits received by end members.”
The consultation on the changes is ongoing but is scheduled to end in August.
After this date, at present, momentous decisions are expected which are likely to have a wide-spread impact.
It has been estimated in the past by the ONS that over 13 million people were part of private sector defined benefit schemes in the UK.
Those who are part of a final salary scheme have their pensionable earnings recalculated each year.
The amount they eventually receive is calculated according to the scheme rules.
For each year of membership of a defined benefit scheme, pension savers will build up a fraction of their final pensionable earnings.
However, it is worth noting that different schemes work in varying ways, so approaching an employer about individual circumstances is often recommended.