Surge in RPI/CPIH consultation responses expected before 21 August deadline

A surge in responses to the government's consultation on switching from the retail price index (RPI) for index-linked gilts is expected before the deadline of 21 August, according to Insight Investment.

The company stated that client discussions had revealed that almost half of those asked intend to participate in the consultation, despite not yet submitting their responses.

The consultation, which was extended until late August in light of the Covid-19 pandemic, seeks view on the implementation of the switch from RPI to the consumer prices index including owner occupiers' housing costs (CPIH), as well as when it should take place.

Insight Investment head of solution design, Jos Vermeulen, predicted a "significant increase" in submissions over the next two weeks, emphasising this as a "critical moment" for the reform and consultation.

He continued: "We hope that the defined benefit (DB) pension fund community takes this opportunity to respond to the consultation, regardless of whether it agrees with our position.”

“An issue of this magnitude, impacting millions of people, needs the broadest possible range of input before a decision is made.

“Insight would also encourage as many of the 10 million people it believes will be impacted by the proposals, as they currently stand, to also respond and make their voices heard.”

Insight Investment previously called on pension schemes to engage with members on the potential impact of the RPI/CPIH switch, predicting that the reforms will have “a significant impact on more than 10 million people in the UK”.

The company has since created an online RPI/CPIH hub, which includes a simplified consultation submission form, which contacts can use to make responding to the consultation easier.

Insight Investment published its own response to the consultation in April, emphasising that a simple alignment could result in a transfer of a wealth from index-linked gilt holders, many of whom are pension schemes beneficiaries, to the UK government of more than £100bn.

The company reiterated its argument that “a fair and equitable outcome” can be achieved if RPI is aligned with CPIH plus an appropriate margin, arguing that investors have historically purchased index-linked gilts in good faith that these would be linked to RPI and not CPIH.

Industry experts previously warned that those schemes who had acted to protect their funding levels would be most at risk to a “significant” fall in funding levels following a RPI/CPI alignment, with others calling for the switch to occur at “the latest proposed time” to help mitigate the impact on pension schemes, with defined benefit scheme deficits likely to be the hardest hit by the reforms.

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