LONDON – UK pensioners will be hit hard in 2010, despite the decrease in the Retail Price Index (RPI) - leaving many potentially struggling to make ends meet, says Hewitt Associates, a global human resources consulting and outsourcing company. 

Data published last week by the Office of National Statistics (ONS) shows an RPI for September of -1.4% p.a. The majority of UK pension schemes will use this data for their next pension increase early next year. As reducing benefits is generally not an option, UK schemes are most likely to maintain payments at their current levels. State pensions are expected to rise at 2.5% p.a.

However, in the detail of the ONS statistics for September, it shows that pensioners have faced 'real' inflation over the last two years of 5.4% p.a. once costs, such as council tax, are taken into account.  Based on this, a typical single pensioner currently receiving a pension of £12,800 p.a. will have effectively seen their costs rise in the last two years by £1,420 while their income only rose £525.

Lynda Whitney, pension consultant at Hewitt Associates said:

"Around half of the UK's single pensioners are living on less than £12,800 a year.  For those that rely on their private pension as a key contributor to their income, no pension increase will be a huge blow. While maintaining levels of private pension as RPI decreases sounds beneficial, the average pensioner's outgoings, for example council tax, face a higher rate of inflation than many of the items allowed for in the RPI. This means the actual inflation faced by them has been 2.2% p.a. in the last year and 8.7% p.a. in the year before that."

While it is company sponsors – in conjunction with trustees – who determine the increase in benefits, Hewitt highlighted that in many cases they are powerless to help in the face of burgeoning deficits. Data from Hewitt Associates Pension Risk Tracker1shows that deficits in FTSE 100 company pension schemes have increased by £48 billion since 1 January 2009, standing at almost £78 billion on 16 October 2009.

Lynda Whitney continued:

"While pensioners are facing a hole in their finances, companies are also struggling to manage their liabilities and are desperately seeking means of plugging the gap. For the majority of sponsors, increasing benefits to take account of 'real' pensioner inflation is simply not an option.

"This situation once again casts the spotlight on the retirement problem in the UK.  There is a difficult trade-off between paying more into your pension, working longer or living on less."

People whose benefits are paid by the Pension Protection Fund will also face a zero increase at 1 January 2010, as this is based on the RPI to May 2009, which was also negative.

Notes to Editors
Hewitt Pension Risk Tracker: https://rfmtools.hewitt.com/PensionRiskTracker/

About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organisations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt works with companies to design, implement, communicate, and administer a wide range of human resources, retirement, investment management, health care, compensation, and talent management strategies. With a history of exceptional client service since 1940, Hewitt has offices in more than 30 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com.

Other Contacts
Anna Mitchell, Capital MS&L, on 020 7307 5346 or anna.mitchell@capitalmsl.com
Helen Essex, Capital MS&L, on 020 7307 5343 or helen.essex@capitalmsl.com