Pensioners and savers could be left worse off by new reforms – are you affected?

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Pension saving and saving throughout an individual’s lifetime is often key to achieving the goals and milestones a person sets. In many cases, Britons are looking to make their money grow as much as possible, something which is particularly important for pension savers who are putting away money for retirement. However, it is believed new proposals put forward by the government and the UK Statistics Authority may prove detrimental for certain groups.

A consultation recently took place to discuss the “shortcomings” of the Retail Prices Index (RPI).

The discussion involved seeing whether it could be suitable to align the RPI inflation measure with the Consumer Prices Index (CPI) – which is traditionally lower.

This would also include the housing costs, and so could have widespread implications across the country. 

However, the Association of British Insurers (ABI) has warned savers could stand to lose out.

Estimates suggest implementing the changes which have been proposed in 2025 could leave savers worse off by £122billion.

But even if the implementation was delayed for another five years, to 2030, it is thought the loss would total £96billion – which still remains a substantial amount. 

Hugh Savill, director of conduct and regulation at the ABI commented on the association’s findings.

He said: “It is widely accepted that the RPI model is less than perfect.

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“But the proposal’s impact will be felt by policyholders and pension savers for decades.

“If the reforms go ahead, and given the impact for savers and the wider economy, it is vital the implementation date is later rather than sooner.

“Compensation by the government should also be seriously considered to avoid creating winners and losers.”

The ABI has said a switch could detrimentally affect long-term savings products.

This, then, could prove of concern to defined benefit pension members, according to the organisation. 

Such proposals being implemented could also affect people with life insurance and pension policyholders.

The consultation closed at the end of last week, where the options available were discussed.

The process was extended due to the COVID-19 crisis, as it was scheduled to end on April 22.

The decision was taken in order to give pension schemes and businesses additional time to respond, as they were forced to tackle issues relating to the lockdown.

A response, however, is not yet finalised as the process was merely a consultation to garner differing viewpoints on the matter.

It is expected the response will now fall in the Autumn, following the summer recess of Parliament. 

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