On Friday the UK Statistics Authority formally announced that the old RPI inflation index would no longer be classified as a “National Statistic”. The Authority, which is the UK Government body charged with promoting official UK statistics, said that the old RPI index “was not consistent with internationally recognised best practices”.
John Broome Saunders, Actuarial Director at BROADSTONE, believes that this will increase pressure on defined benefit scheme trustees to adopt an alternative inflation index for calculating pension increases. “This is yet more formal confirmation that the old RPI index is palpable rubbish – it systematically overstates actual inflation. This is great news for pension scheme sponsors, who should be able to further increase the pressure on scheme trustees to junk old RPI as the basis for calculating pension increases, and adopt an alternative index (such as the new version of RPI which will be available from tomorrow). Moving to the new version of RPI could slash 10% from total liabilities, which could in some cases eliminate scheme deficits at a stroke.”
John Broome Saunders