Smaller, solvent pensions
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.Furthermore, unlike in the US where few private sector pension schemes are inflation-proofed, there would be a huge change in the prospective solvency conditions for UK pension funds. According to Stephen Dias and Graham Warren, insurance analysts at Goldman Sachs, a drop of 1per cent per annum in the measured rate of retail price inflation, with everything else staying the same, would mean that a typical pension fund could be 10 per cent smaller and still achieve solvency. If wages were to rise less rapidly in response to the decline in measured price inflation, the average pension fund could decline by 20 per cent.
Whether this looks like a good or bad thing depends entirely on where you are sitting in the demographic spectrum. A drop in the measured rate of inflation would result in a large distributional shift away from social security recipients and pensioners towards the rest of the population.
If you are an unemployed steel worker with a few years to wait before drawing an occupational pension scheme, this will seem a very bad idea. If on the other hand you are a 22-year old with excellent career prospects, you may welcome the fact that you will need to pay less taxes to discharge commitments which have been made to retired people.
And the Government could achieve a given inflation target more easily than before. If the Chancellor is concerned only with the rate of inflation reported by the statisticians, and not with what is actually happening in the real world, the statistical reform discussed by Dr Greenspan would be manna from heaven. The genuine rate of inflation could be permanently higher than before, and the electorate would not be able to tell the difference.
This would allow a large one-off gain in the level of output. According to a recent speech by Mervyn King of the Bank of England, a reasonable estimate is that output needs to be reduced by 5.8 per cent for one year to reduce inflation permanently by 1 per cent.
Working in reverse, a similar one-off gain in output - worth about {M2{M040bn - could occur if the Government was to allow inflation to rise by the 1 per cent hypothetically shaved off by the statisticians.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments