Private pensions are hit for £100bn: Final salary scheme change will affect millions

Final salary pensions in the private sector will plunge in value following explosive changes revealed yesterday.



A technical change to the way annual increases in pensions are calculated each year means millions of pensioners and workers will be worse off.



Accountants KPMG said it could reduce private sector pension promises to workers by ten per cent, or about £100billion.

Potential misery: Millions of OAPs could be worse off as a result of the changes (posed by model)

At present, the annual increase is linked to the retail prices index measure of inflation, known as RPI.



But from January next year, it will be linked to the consumer prices index measure of inflation, known as CPI. This is typically far lower than RPI.

The move has echoes of Gordon Brown's £5billion a year tax grab on pensions, one of his first moves as Chancellor in 1997.

Laith Khalaf, a pensions analyst from the financial advisers Hargreaves Lansdown, said: 'This may be great for pension schemes but as usual that means it is absolutely terrible for pension scheme members.



'Final salary pensions in both public and private sector are losing their golden sheen.'



Many of the anticipated 5.3million victims will have already retired and will be claiming their pension.



RPI is currently 5.1 per cent but CPI is only 3.4 per cent.



Someone who is currently receiving a pension of £10,000 a year would get £25,270 a year in 20 years' time if the annual increase was linked to RPI.



Yesterday's changes mean that the same pension will be worth just £18,875 a year after two decades in retirement, according to calculations by Hargreaves Lansdown.



This is a total difference of more than £50,000.



The Government says the move will help companies keep their gold-plated pension schemes open.



But pension experts yesterday accused the Government of making a stealth move.



In the Budget last month, the Chancellor made clear that State pensions and public sector pensions would be subject to this change.



But no mention that it would also affect company pensions was made.