The government and UK Statistics Authority (UKSA) have launched a consultation today, alongside the Budget, on the latter’s proposal to address the shortcomings of the Retail Prices Index (RPI) measure of inflation.

The government said RPI “has at times greatly overestimated, and at other times underestimated the rate of inflation”.

Today’s Budget 2020 background documents said: “The consultation will cover, among other things, the issue of timing, including whether the UKSA’s proposal might be implemented at a date other than 2020, and if so, when between 2025 and 2030, and issues on technical matters concerning the implementation of its proposal. The consultation will be open for a period of six weeks, closing on 22 April 2020. The government and UKSA will respond to the consultation before the Parliamentary summer recess.”

Buck head of retirement consulting Vishal Makkar said: “With the launch today of the joint consultation on the future of the RPI and CPI, schemes should be seriously considering the impact of the profound potential changes which could come into effect as soon as 2025.

“Whilst you might expect paying lower future pension payments to members would be a boon for company sponsors, many schemes won’t see an improvement in their funding levels as falling asset values will wipe out any potential funding gains. Indeed, some schemes which already have CPI-linked pension increases could actually see funding levels deteriorate as decreasing asset values are not matched by a fall in liabilities.

“However, the real losers of any RPI to CPI change are those retirees whose pensions will receive lower increases in the future, with some losing around 1% of the value of their benefits each year. It will come as cold comfort that these are the same individuals who kept RPI-linked pensions in 2011 when the scheme rules lottery took it away from many of their peers.”

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