Bob Scott, senior partner at LCP, comments on The Office for National Statistics results of the Retail Prices Index (RPI) review:
"The decision not to change the way RPI is calculated is good news for members of pension schemes and for holders of index-linked gilts, who will not see the fall in their pensions or investments that might have been expected if the National Statistician had announced a change to RPI.
Attempting to define a "correct" measure of inflation is a near impossible task, and one which the ONS has not taken lightly. However, today's announcement does come as something of a surprise - leaving us with the status quo, which inherently brings with it a "lottery" for scheme members as to the benefits they will receive, where some schemes are linked to the CPI and some to the RPI.
It also raises the question as to why the Government has spent considerable time and money on a consultation which has resulted in no change to the RPI."
Alan Collins, Head of Corporate Advisory Services, Spence and Partners commented on the RPI review:
“The ONS consultation on inflation will not, against expectations, result in any major change to the calculation of RPI. Instead , yet another measure of inflation will be created. It will take time before we see what the new index will mean and where it will be used. This will no doubt lead to further confusion as to what inflation actually means, as it would appear we will now have at least three ways of measuring it.
“The announcement means pension scheme funding levels will not receive the expected boost. As such, security for members of underfunded schemes will not improve and there will be no relief to the sponsors of these schemes (which will no doubt be especially galling for those who "missed out" on the benefit of the previous switch to CPI which occurred in 2010/11).
On the positive side, the announcement will mean that pensioners will retain the current value of their RPI linked pension. A change could have meant their pensions would have been worth thousands of pounds less. Investors in RPI linked investment will also not suffer losses to future income.”
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