Govt expected to align RPI with CPIH in February 2030

The Retail Price Index (RPI) will be reformed to align with the Consumer Price Index including owner occupiers’ housing costs (CPIH) no earlier than February 2030.

In its consultation response, the government confirmed it would reform at the later proposed date to mitigate the impact, but said it will not offer compensation to the holders of index-linked gilts.

The response confirmed that the UK Statistics Authority (UKSA) will proceed with its preferred statistical method for bringing the methods and data sources via a chain link, as outlined in the consultation earlier this year.

The UKSA will also discontinue the supplementary and lower level indices of the RPI at the point when the proposal is implemented and provide users with guidance to assist in moving away from RPI-related indices.

The Chancellor, Rishi Sunak, confirmed that the reforms will not be implemented before the maturity of the final specific index-linked gilt in 2030, in order to minimise the impact on holders of index-linked gilts.

In a letter to UKSA chair, David Norgrove, Sunak stated: "Having considered the responses submitted to the consultation, I am informing you and the board that while, like my predecessor, I see the statistical arguments of the board’s intended approach to reform RPI, in order to minimise the impact of UKSA’s reform to RPI on the holders of index-linked gilts, I will be unable to offer my consent to the implementation of such a proposal before the maturity of the final specific index-linked gilt in 2030.

"After this specific index-linked gilt has matured, the UKSA Board can implement changes to RPI unilaterally.

"You will be aware from the responses to the consultation, that there have been widespread calls from users of RPI – particularly index-linked gilt holders – for the authorities to provide certainty on the future of the index in the outcome of the consultation."

However, the government confirmed that it will not offer compensation to the holders of index-linked gilts, despite acknowledging that the vast majority of index-linked gilt holder respondents had called for further mitigation.

The response stated that the contractual terms of all index-linked gilts state that the RPI should be used to determine the index ration, which is used to calculate interest and redemption payments, and that there is no change to this from the implementation of the proposed reform.

Whilst the government also acknowledged that some defined benefit (DB) pension scheme members will be affected by the reform, it emphasised that the reforms will not be implemented until 2030, which industry experts previously suggested could help mitigate the impact.

It also noted that the extent to which DB schemes are impacted will depend on the extent to which it is hedged and the nature of its liabilities, stating that whilst some schemes will see a negative impact on funding positions, others may be "no worse off from the change".

Furthermore, it stated that not all of the impact of reform on DB pension schemes will be driven by the change in returns from index-linked gilts, noting that DB pension schemes invest in a range of RPI-linked assets.

The consultation received 831 written responses, more than double the number of responses to the previous RPI consultation, including 125 responses from DB pension scheme trustees and 257 responses from individual members of the British Airways Scheme.

Industry experts have previously warned that the reforms could cost savers and investors up to £122bn and impact up to 10 million DB savers, whilst also leaving pension schemes around £80bn worse off.

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