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New ways of measuring inflation could make pensioners worse off
22/12/2011
It has recently been reported in the National Press that the Government is planning to review the way it measures inflation prior to the next budget, in April 2012. This review has been prompted by the unexpected high level of inflation captured in the CPI in September. Usually the April budget focuses on the rate of inflation reported in September for increases in state pensions and benefits.
If the Government were to go ahead using the current method of increasing the state pension in line with September's CPI, recorded at 5.2%, pensioners would expect to receive £107.45 a week (an increase of £5.30).
The current thinking is to make the April budget inflation rate to be set at the average CPI recorded over the year. Currently this is 4.4%. Using this figure to calculate the state pension; pensioners would expect to receive £106.64 a week (an increase of £4.49).
Although this change is unlikely to been seen as a big impact to the pensioner, it will save the Government an estimated £1.5 billion. The Treasury would save billions as they would be paying out less on benefits such as housing allowance and child tax credits.
Over the years, pensioners would become worse off as the system continues to be implemented and is likely to payout at a lower rate than under the previous inflation calculation.
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