RPI/CPIH consultation extended until August 2020

The UK Statistics Authority and HM Treasury have agreed to extend the RPI reform consultation deadline until 21 August 2020 due to the ongoing coronavirus pandemic.

Responses will be accepted throughout the extended period, with an official response to the consultation now expected to be published in Autumn 2020.

The consultation was launched on 11 March as part of the Spring Budget, and seeks views on the implementation of the switch, as well as when, between 2025 and 2030, the reforms should be introduced.

This is not the first delay faced by the consultation however, having been originally scheduled to launch in January 2020.

Industry experts have welcomed the extension, with the Pensions and Lifetime Savings Association (PLSA) describing it as the “correct decision” in light of the circumstances.

The extension follows a series of letters between Chancellor Rishi Sunak, and UK Statistics Authority chair, David Norgrove, in which the Chancellor emphasised the need for businesses and individuals to focus on mitigating challenges stemming from the Covid-19 crisis.

Sunak stated: “Our officials have been discussing the feasibility of the consultation in the current circumstances under the existing timetable.

“In light of the evolving situation, in order to hold a meaningful consultation we agree that we should extend the consultation period.

He confirmed: “As such, we have agreed to extend the consultation period beyond 22 April.”

However, Sunak clarified that this updated deadline would be subject to further coronavirus-related developments.

Norgrove agreed with the extension, adding that it would allow respondents the "fullest opportunity to participate", as well as giving the authority and government time to give "due consideration" to all responses.

Insight Investment had also previously written to the Chancellor to request an extension “given the unprecedented situation" stemming from the pandemic, in a letter dated 24 March 2020.

The firm stated: “We are concerned that the greatest impact of the proposed changes will fall on the more than 10 million beneficiaries of defined benefit pension schemes."

It argued that as many beneficiaries in question are elderly, they are unlikely focused on these changes considering the ongoing pandemic, adding that the crisis will make it "Impossible" for many to craft a "considered response".

This echoes previous warnings that members might be unaware of the potential impact of the change on them as individuals, with experts calling on schemes to engage with members to encourage consultation responses.

Insight Investment head of solutions design, Jos Vermeulen, has now welcomed the extension, emphasising that it will provide all participants with more time to complete their submissions and ensure that their voices are heard.

He added: “If RPI is simply amended to match CPIH, we estimate that if the change were made from 2025 it would result in an unintended transfer of wealth of up to £120bn away from holders of index-linked gilts reducing pension transfer values and lifetime incomes by 10-15 per cent or more.

“We believe that a decision of this magnitude, impacting millions of people, needs the broadest possible range of input before it is made.”

The proposals themselves had received industry criticism before, with the Pensions Policy Institute arguing earlier this month that the change would likely see an increase in DB scheme deficits.

PLSA policy lead for DB and LGPS, Tiffany Tsang, added: “As we have previously stated, we believe RPI is a flawed measure of inflation, but any plans to phase it out must take into consideration the £60-80bn impact on pension schemes, which have made RPI-linked investments in the interests of their members, in good faith.

“Workers’ savings must not be unduly compromised by an administrative change in the measure of inflation that acts, in effect, as a tax on employers, savers and pensioners.

“Any change should therefore necessarily be offset by fair and appropriate mitigation for schemes. “

“We look forward to working with government to find a pragmatic solution that doesn't unfairly impact individuals' pension savings.”

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