Monthly Archives: December 2011

Union protests at the government changing the way public sector pension increases are worked out have been thrown out by the High Court.

Several trade unions bought a joint case against the government for switching the official measure of inflation from RPI to CPI.

The unions claimed the decision meant lower pensions for public sector retirees and scuttled their financial plans for retirement.

The government argued the switch was fair and saved the country £6 billion a year.

The point at the centre of the row was the rate of increase between the consumer price index (CPI) and retail price index (RPI). Both measure inflation, but CPI strips out housing costs.

RPI typically runs at a higher rate than CPI, so switching between them results in lower index-linked pension increase for public servants.

The High Court judgment fell 2-1 in favour of the government, but leaves the decision open to appeal.

The unions had put figures before the court to show public workers would face a 15% decrease in pension payments and a lower tax-free lump sum payment than expected.

Lord Justice Elias said three of the four grounds of challenge were dismissed unanimously, while one was rejected by a 2-1 majority.

The switch to the CPI came into effect in April.

The government told the court that ministers were entitled to consider CPI “a more appropriate measure of changes in the general level of prices”.

TUC General Brendan Barber said: ‘This is a disappointing judgement for pensioners and scheme members whether they draw a private, public or state second pension.

“We take great heart that the court accepted the argument that the government did this to cut the deficit rather than carry out a proper consideration of the best way of measuring the cost of living for pensioners, even if only one judge said that it was unlawful.

“With the Office for Budget Responsibility now predicting that the long-term gap between CPI and RPI will be 1.4 per cent, pensioners in both private and public sector schemes will find that their pensions will be 20p in the pound lower after 18 years of retirement.”

Drivers without car insurance are picking up average fines of just £200 if they go before the courts, while honest drivers are paying more than £900 for their cover.

Meanwhile, 160 people are killed and 23,000 injured by uninsured drivers on the roads – and £33 of every honest driver’s premium goes towards settling the bills for this carnage.

The shocking figures revealing the fines for no insurance were divulged in the answer to a parliamentary question from MP Karl McCartney to Justice Minister Crispin Blunt.

The minister confirmed that during 2010, courts in England and Wales issued 105,082 fines averaging £200 for driving with no insurance. Police also crushed around 100,000 cars belonging to offenders.

The Insurance Blogger thinks that uninsured drivers are getting off lightly.

First, thousands of crooked drivers never get to the doors of the courts because the police issue them with a fixed penalty ticket instead.

Next, the level of fines is scandalous when compared to the real cost of insurance.

Some young adult drives are paying car insurance premiums of up to £2,500 a year. They must be doing the math and working out they could buy an old banger and not bother with insurance cover and profit by hundreds of pounds a year.

A fairer approach by the courts would be to set the penalty for driving without car insurance at what the driver would have paid in premiums for the year plus the average fine.

That way, going to court for no insurance is a real penalty and a costly deterrent.

According to the AA, men under 24 are five times more likely to driver without cover than anyone else. If these young drivers knew they faced a bill of around £2,700 plus points on their licence and having their car crushed, they would think twice about getting behind the wheel.

Justice is about fairness and receiving a punishment that matches the crime. The present system is too soft on offenders and unfair to honest drivers

The AA agrees – Simon Douglas, their director of insurance, said: “I believe uninsured drivers should pay the equivalent of the unpaid insurance premium, which can easily be calculated, in addition to a fine. What’s more, the fine should be sufficiently great to make them think twice before offending.

“This could be coupled with community service orders and for repeat offenders, possibly custodial sentences.”

Many retirement savers are considering delaying buying an annuity in the hope that providers may offer better rates next year.

The problem is taking a chance on interest rates in the hope of a better income pay out is likely to backfire.

A 65 year old man with £100,000 to spend on an annuity will pick up an annual income of around £6,427 from Canada Life.

The gamble is waiting for a year could mean a larger fund to invest at a better interest rate, returning a higher income.

The downside is the value of the fund could drop due to volatile financial markets and City analysts and financial institutions, like the Nationwide, predict official interest rates will stay at 0.5% for at least another 12 months.

Now look at the math behind a 12 month annuity delay.

Say the financials worked to our 65 year old’s advantage – he could have a fund of £102,000 to invest, producing an annual income of £6,743 at the same rate as available now, according to pension firm Hargreaves Lansdown.

That’s an extra £316 a year income – but divide that in to £6,427 to find that he might have to live another 22 years to make up the one-year loss.

The likelihood is in that year, annuity rates will continue to drop, which is the current trend.

The latest findings from the MGM Advantage Annuity Index, which tracks the income paid on enhanced and conventional annuities on a quarterly basis, reveals the average conventional rates dropped 4.15% and those for enhanced rates fell by 2.33% in just three months.

The 3% drop in overall average annuity rates is the largest decrease since September 2010 and means rates have fallen by 5.79% since June 2009.

Aston Goodey, of MGM Advantage said: “These findings will put even more pressure on those people in or approaching retirement as they are faced with the reality of living longer, rising inflation and falling annuity rates.
“We predict this downward trend in annuity rates will continue, and there are no signs that inflation will go down significantly in the near future.”