Changes to inflation index criticised
News that the Office for National Statistics is to consult over changes to the calculation of the retail prices index (RPI) has been criticised by Barnett Waddingham consultant Malcolm McLean as “constant moving of the goal posts” which will make planning harder for sponsors and members.
McLean added: “It would be ironic to say the least if the impact of any such changes were to reverse the situation whereby members of private pension schemes which use RPI can expect to receive generally larger inflation increases than others who now receive lower ones based on the CPI.” He continued: “It also begs the question: if the outcome of this proposal brings the RPI and CPI broadly in line, what will be the point of having two separate indices going forward.”
The CPI measure of inflation replaced RPI as the statutory minimum for pension increases and revaluations from January 2011 for public and private sector defined benefit schemes. Zoe Lynch, a partner at law firm Sackers, commented: “It is estimated that the switch to CPI knocked 15% off liabilities for some schemes, depending on their membership and liability profile. These changes to RPI are likely to make RPI more like CPI. This is likely to reduce increases to pensions in payment in the future and thus scheme liabilities for the schemes which retained RPI.”
And the NAPF said changing how RPI is calculated could have farreaching consequences for both pension funds and pensioners. “Pension funds are big investors in government debt so any changes to index-linked bonds could have major impacts on those investments. A shift in RPI could also affect the amount by which the pensions being paid to retired workers go up each year, and change the overall funding position of the pension scheme.”
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