The method used to calculate the retail price index could change in the next decade, meaning members of defined benefit schemes could receive lower pension increases.
Chancellor of the exchequer Sajid Javid announced that the government will consult on a reform of the RPI, with the goal to align it with the consumer prices index, including housing costs.
Mr Javid was responding to a proposal from the UK Statistics Authority, which stated that RPI isn’t a good measure for inflation, as it was intended to be a legacy index and was dropped as the official measure in 2010.
But scrapping RPI could leave pensioners of DB schemes £12,000 worse off, according to calculations from Unison.
RPI generally runs at about 1 percentage point higher than CPI and is currently 2.8 per cent, compared to a CPI of 1.9 per cent.
Pension schemes can link increases to their employees’ pensions – and therefore the employers’ liabilities – to CPI, as long as their own rules don’t specifically mention RPI.
This has been the subject of several recent court cases, such as BT’s or Barnardo’s, in which trustees and employers sought approval to change their inflation indexation to reduce benefit payments to members.
In January, a report from a House of Lords committee recommended using a single inflation measure to stamp out the process of “index-shopping” by the government.
The chancellor declined to make changes to RPI before 2025, as requested by the UK Statistics Authority.
Instead, the government will launch a consultation in January 2020 to ask whether this change should be made at a date other than 2030, and if so, when between 2025 and 2030.