Final Salary Pension changes

How the new rules could affect your retirement provision

From 6 April 2011, private sector Final Salary Pensions need only be uprated in line with the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). Typically, CPI runs below RPI and, consequently, over time this could mean some final salary members experience a reduction in their retirement income.

Inflation-linking schemes

This may not apply to all schemes. Some schemes may specifically State in their rules that they will uprate benefits in line with RPI. It’s also worth bearing in mind that, although the Government sets what the minimum inflation-linking schemes must provide, it’s perfectly possible for a scheme to provide increases in excess of this level.

If your scheme does intend to adopt CPI uprating, this could have a negative impact on the income you can expect to receive from the scheme. Ultimately, this depends on the RPI and CPI levels and how they differ, but historically CPI has trailed behind RPI. The impact on your income will also depend on when you built up benefits, because the inflation protection afforded to final salary scheme members has changed over the years.

From 6 April 2011, if you earn more than £150,000 you will have to pay a tax bill based on your age, length of service and salary.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.