RPI reform review delayed

A joint consultation on proposed reforms to the retail price index (RPI) was launched on the 11th of March.

The suggested alignment of RPI with the housing variant of the consumer price index (CPIH) would reduce RPI by around 1% and schemes with CPI-linked liabilities may see a reduction in their funding levels of 10% or more, according to analysis by Barnett Waddingham.

In a letter to the chairman of the Economic Affairs Committee, Lord Forsyth, ex-chancellor Sajid Javid confirmed that the consultation will remain open until 22 April.

The joint consultation with the UK Statistics Authority will also ask for responses on the point RPS should be merged between 2025 and 2030. It follows recommendations in September from UKSA that the government should scrap the RPI, which described it as “not a good measure” of inflation.

Ian Mills, principal and senior investment consultant at Barnett Waddingham, said the consultation could have seismic implications for all UK defined benefit pension schemes.

“The government runs the risk of punishing those who have been prudent, with a well-funded and well-risk-managed scheme, whereas those that have left risks unmanaged could be rewarded,” Mills said. “The government needs to be careful about moral pitfalls like this, as setting such a precedent can dangerously affect trust and behaviour.”