Private pension switches to lower inflation metric in money saving exercise

Former employees from Dairy Crest will be forced to take a retirement pay cut after the milk and butter giant announced it would change the way it calculates annual increases.

In future, it said, the increases will follow the Consumers Prices Index (CPI), rather than the current Retail Prices Index (RPI) inflation measure.

The change will see pensions rise by around one per cent less each year. In July, RPI rose 3.6 per cent compared to 2.6 per cent for the CPI.

Dairy Crest says letters have been sent to around 15,000 members of its scheme to inform them of the cuts.

It said cash contributions to its pension scheme will reduce by £12 million over the next two years, as part of its efforts to plug its £100 million pension deficit.

In 2010, all public sector final salary schemes changed to be linked to the CPI rather than the RPI, with some private sector companies following suit.

However, in order to do so, the governing agreements of certain schemes have to be challenged, as RPI is often specifically referenced as the measure of inflation.

Analysists Numis said: “Overall the net effect removes about £100 million of potential future liabilities and represents a significant step forward in reducing its pension liability in our view.”