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Public sector pensions back in the spotlight

The UK government has today announced a new measurement which will be used to increase public sector pension payments year on year to allow them to cover the ongoing increase in the cost of living. Instead all using the retail price index to increase the value of pension payments year on year, the government will be using the consumer price index which does not include housing costs and is therefore generally lower than the retail price index. So what impact will this have on public sector pensions?

Many people may be surprised to learn that the change in measurement from the retail price index to the consumer price index could reduce pension payments in the long run by as much as 25%. This would reduce the future taxpayer liability on public sector pension schemes which are on the whole final salary schemes - which are becoming very rare in the private sector. So is this fair?

It does seem very unfair that many public-sector workers who have saved for years for their future could now see their pension fund values decrease in the years ahead. However, the government needs to find a balance between the increased burden for UK taxpayers and the ever-changing environment for private sector pensions.

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