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Pensioners could be hit by RPI reform

Experts say members of defined-benefit pension schemes are likely to suffer if the Office for National Statistics decides to change the way it calculates the retail prices index.

The ONS is considering calculating RPI using the same methods as the consumer prices index, which is usually lower.

The consultation starts on 8 October and closes on 30 November. Any changes will be announced in January and implemented in March.

Hargreaves Lansdown pension investment manager Laith Khalaf says: “While this is likely to be good news for employers running defined-benefit schemes, the members of those schemes are going to lose out because their pensions will be worthless.”

The National Association of Pension Funds says the change could reduce the RPI by between 0.3 and 0.9 per cent and is likely to have a “far-reaching impact” on pension investments.

NAPF policy director Darren Philp says: “A rewiring of RPI could have huge implications. Pension funds are major investors in government debt and changes to index-linked bonds could have far-reaching impacts on those investments. It could also alter the amount by which pensions being paid to former workers are increased each year.

“We will have a good look at the ONS proposals and will be sharing our views.”

Confederation of British Industry head of pensions policy Jim Bligh says: “For pension funds this will result in short-term funding pain but long-term funding gain. In the short-term, gilt yields will drop but the value of liabilities will decrease over the longer term.

“It also means those companies that could not switch from RPI to CPI will benefit from the change.”

Informed Choice managing director Martin Bamford says: “This will inevitably have wide ranging effects and the Government needs to think very carefully about how it might impact on people’s savings.”

The Bank of England will be consulted and chancellor George Osborne must give his consent if the Bank feels the reforms amount to a “fundamental change” to the basic calculation of RPI and would be “materially detrimental” to the interests of index-linked gilts.

CPI is calculated using all UK private and institutional households and foreign visitors to the UK, whereas RPI excludes those on the highest income and pensioner households that are mainly dependent on state benefits. Those excluded from the RPI account for around 13 per cent of all UK household expenditure.

The CPI excludes mortgage interest payments, house depreciation and council tax, which are included in the RPI.

In August, CPI stood at 2.5 per cent, compared to 2.6 per cent in July, while RPI fell to 2.9 per cent from 3.2 per cent in the previous month.

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  1. This shows that as fags are bad for your health governments are bad for your wealth. There is a web site called SatsUserNet which has an RPI-CPI User Group, largely a discussion between Royal Statistical Society and ONS statisticians. There is considerable disagreement on the way RPI is being gerrymandered down. It is not at all clear that the ONS’s preferred method, which is to apply the same fix to RPI as it has applied to CPI, is in any way correct. Yet the ONS, which is supposedly independent, seems determined to push it through. One attendee at a CPAC meeting said the minute looked like they were written before the meeting. Ostensibly the proposed change to the RPI calculation is a consultation but the amount of propaganda appearing in the press (FT in particular) suggests it is a done deal. This is government larceny on a grand scale. This may not be the most dishonest government ever but it is close.

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