No change to RPI but yet another new index

The ONS consultation on inflation will not, against expectations, result in any major change to the calculation of RPI.  Instead , yet another measure of inflation will be created.  It will take time before we see what the new index will mean and where it will be used.  This will no doubt lead to further confusion as to what inflation actually means, as it would appear we will now have (at least) three ways of measuring it.

The announcement means pension scheme funding levels will not receive the expected boost. As such, security for members of underfunded schemes will not improve and there will be no relief to the sponsors of these schemes (which will no doubt be especially galling for those who “missed out” on the benefit of the previous switch to CPI which occurred in 2010/11).

On the positive side, the announcement will mean that pensioners will retain the current value of their RPI linked pension (a change could have meant their pensions would have been worth thousands of pounds less) and that investors in RPI linked investment will not suffer losses to future income.

Alan was first quoted on this issue in The Actuary magazine and is also mentioned in the Actuarial Post and the Herald Scotland.