Incoming RPI changes could alter pension funding positions

24 October 2019

LCP publishes on its website:

“LCP’s second annual corporate sponsor report, released today, looks at how a new funding code and increased powers of the Regulator will affect corporate sponsors and scheme members alike.

The ONS has now confirmed its intention to reform RPI and replace it with the formulae underlying CPIH inflation, from 2030 at the latest. Even though this may not happen until 2030, it has vast consequences (potentially good news for some, bad news for others) which affect decisions being made now by pension sponsors and trustees.

The ONS has now confirmed its intention to reform RPI and replace it with the formulae underlying CPIH inflation, from 2030 at the latest. Even though this may not happen until 2030, it has vast consequences (potentially good news for some, bad news for others) which affect decisions being made now by pension sponsors and trustees.

CPIH is expected to be around 1% pa less than current RPI, which is a big difference. This means that DB scheme members with RPI-linked increases will expect to get lower pensions from 2030 that they otherwise would have had. While a net financial gain is expected if the scheme increases are mainly RPI-linked and this is only partially hedged, schemes are likely to suffer a net financial loss if they are mainly CPI-linked and RPI instruments are in place to hedge this.”

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