Pyramid Comment

This journal takes an alternative view on current affairs and other subjects. The approach is likely to be contentious and is arguably speculative. The content of any article is also a reminder of the status of those affairs at that date. All comments have been disabled. Any and all unsolicited or unauthorised links are absolutely disavowed.

Tuesday, December 13, 2011

Consumer And Retail Price Indices

Inflation is measured by the Consumer Price Index or Retail Price Index. In reality whichever best fits a need will be chosen using the more in-less out principle. The CPI does not include council tax, mortgage interest repayments, house depreciation, buildings insurance, ground rent, solar PV (PV = photovoltaic) feed in tariffs and other house purchase costs (estate agent/conveyancing fees). As a consequence CPI is generally the lower of the two.

These exclusions concern the majority
of consumers living in the UK - DA

CPI, RPI and Pensions

In March 2009, the RPI decreased to below zero (negative), indicating an overall annual reduction in prices. The first time since 1960. But that was then. Now?

Inflation is 5.2% so the RPI means that more revenue moves in with less out. So it's the right time to change the calculation basis. More in and less out (hardly a surprise - DA).

With Student Loans it's all about more in... and more in.The CPI is lower than the RPI and unsurprisingly, pensions will be calculated based on the CPI as this will be less generous than using the RPI.

Similarly, student loan interest is based on the RPI. Currently this is described simply as the

rate of inflation + 3%

It is still there, but is not easy to find. See: Interest rates on loans. Currently, (13.12.2011) this rate is 5.2% and with the top-up reaches...


Closer examination reveals:

Interest on your student loans

You’re charged interest on your loan from the time you get your first payment in university until you pay your loan back in full.
The amount of interest you’re charged varies (see table). The actual interest rates depend on the rate of inflation.
Your income per yearInterest rate on your loan
while you're studyingrate of inflation plus 3%
£21,000 or lessrate of inflation
£21,000 -  £41,000varies between the rate of inflation and the rate of inflation plus 3% depending on your income
£41,000 or morerate of inflation plus 3%

While studying the interest rate is that of inflation (RPI+ 3%. Before you have a chance to reduce the loan capital, the maximum interest is charged for every year of study - a minimum of three years at the maximum rate. After graduation:

 Your income per year  Monthly repayments
 £21,000 and under no repayments
 £25,000  £30
 £30,000  £67.50
 £40,000  £142.50
 £50,000  £217.50
 £60,000 £292.50

Assuming (a flawed - DA) base of zero interest:

  • £27,000/£292.50 =  7.69 years
  • £27,000/£217.50 =  10.34 years
  • £27,000/£142.50 =  15.79 years
  • £27,000/£67.50 = 33.3 years
  • £27,000/£30 = 75 years

The addition of a variable (and totally unpredictable) amount of interest that is wholly dependent on the repayment rate (less paid back the greater the resulting monthly amortised interest renders it impossible to fix  figures. But the amount will definitely be greater that those above for 'just' £27,000.

Even at around £70/month (£30,000/year) this will be for the full term of 30 years and this is unlikely to be a starting salary, but a career maximum. The outlook is a working career continuously (30 x 12 = 360 months) paying off the original never-ending debt.

  • Don't forget to take into account the cost of buying a house (or renting), eventual pension provision... - DA

Usury And Islamic Student Loans

Nothing to pay up front defines the
maximum coming up from the rear

Remember the mantra:

"nothing up front",
but keep a close watch behind