Pensions - Articles - Broadstone asks Pension Regulator to end use of RPI index

 Broadstone Corporate Benefits, the independent pensions and investment expert, comments on the Johnson Review of UK inflation indices that has been published today. Amongst his recommendations, Paul Johnson says that “Government and regulators should work towards ending the use of the RPI as soon as practicable.”

  

 Commenting on the implications for DB pension schemes, John Broome Saunders, consultant at Broadstone, said:

 “Many pension scheme trustees persist in using the old RPI index to calculate pension increases, despite the fact that it is now universally acknowledged to be a flawed measure of inflation. The Regulator should now issue a clear statement instructing trustees to adopt an alternative measure – probably CPI – unless trustees genuinely believe that they have a permanently binding legal obligation to continue to use RPI. Continued use of the old RPI index, which overstates inflation and therefore leads to larger pension increases, is costing pension plan sponsors billions of pounds.”

  

 Broome Saunders believes that the Regulator should also address potential conflicts of interest amongst trustees. “Trustees who are scheme members may well have a vested interest in retaining the old RPI index, because they will personally benefit from the higher level of pension increases. The Regulator should remind trustees of its existing guidance on conflicts of interest and make it clear that in many cases such trustees should consider withdrawing from decision-making regarding pension increases because of this conflict.”