Under new rules set out by George Osborne, the Chancellor, in the emergency budget in June, public sector pensions are now linked to high street prices rather than the more generous retail price index, which currently stands at 4.6 per cent.
The new rate is based on the level of the consumer price index in September – when, according to figures just released, high street sales were a modest 3.1 per cent.
As a result, 3.5 million retired public sector workers are set to miss out on an average of £117 next year – the equivalent of £2 a week.
That means that a retired public servant with a pension of £10,000-a-year will see their income rise by £310 compared to the £460 they would have received had the former link to RPI, which includes housing as other household costs, been retained.
John Ball, of pension experts Tower Perrin, said: “CPI inflation is generally lower than RPI inflation so the gap between the pension they would have received and the pension they will now receive should get wider over time.”
Trade unions accused the Government of penalising pensioners who have already suffered from lower interest rates on their retirement income during the recession and rising food and fuel prices.
The move will also affect benefits paid to widows and carers.
Brian Strutton of the GMB said “The government’s use of CPI for pensions indexation instead of RPI will take 1.3 per cent from pensioners at the very time food and clothing prices are rising and VAT is about to soar, this equates to a £117 cut.
“At a stroke in June George Osbourne wiped thousands of pounds from diligent savers’ retirement incomes, now the impact on individuals becomes clear – an average public sector pensioner will lose more than two pounds a week as a result of the budget.
"This is another example of a choice made by government that hits the poorest hardest today and causes increased tax bills tomorrow as more pensioners fall onto means tested benefits.
“This isn’t part of a structured plan to reduce the deficit, this one element of an ill-conceived legislative programme of random cuts.”
Brendan Barber, general secretary of the TUC, added: “Millions of people will today learn the cost of the bombshell buried in the budget small print.
“The Government has singled out carers, the unemployed, widows and pensioners to be permanent victims of their policies.”
