Pension warning as thousands face £50,000 hit to savings | Personal Finance | Finance

Retirees with private “defined benefit” pensions could lose tens of thousands of pounds due to a change in how inflation will be measured, experts warn.

Most defined benefit pensions rise annually with the Retail Price Index (RPI). However, starting in 2030, RPI will be aligned with the Consumer Prices Index, including Housing Costs (CPIH), which is, on average, 0.5% lower.

The shift will mean smaller annual increases, significantly reducing total pension payouts over retirement, the Telegraph reports.

Defined benefit (DB) pensions guarantee a fixed annual income for life, calculated based on final or average salary. Although most DB pensions are closed to new members, millions of workers still hold entitlements in these schemes.

Under current rules, an analysis by insurance firm Royal London showed a 66-year-old retiree with a £25,000 annual private sector pension would typically receive £853,944 over 25 years.

Under CPIH, this drops to £800,757 – a £53,187 loss – based on an expected inflation gap between RPI (2.5%) and CPIH (2%).

The RPI has long been criticised as outdated, but despite opposition from pension trustees, the Government will transition to CPIH in 2030.

Lisa Picardo, chief business officer at PensionBee UK, told Express.co.uk: “The shift from RPI to CPIH will have a large impact on pensioners relying on defined benefit schemes, effectively reducing the value of their annual increases and cutting their lifetime retirement income.

“While the change aligns with the Government’s broader effort to modernise inflation measures, it will leave many retirees with less than they had planned for.”

With the cost of living continuing to be a concern for pensioners, Ms Picardo pointed out the importance of individuals taking a “proactive” approach to their retirement planning.

She said: “Those with private pensions should consider reviewing their savings strategy, ensuring they are contributing enough to maintain their expected standard of living in later life.

“Savers could also consider using Pension Wise, a free Government service that offers impartial guidance to help savers over the age of 50 make informed decisions about their pension and retirement options.”