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02 Dec 2020

The composition of the Retail Prices Index set to change

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RPI to be aligned with CPIH from 2030

The composition of the Retail Prices Index (RPI) is set to change from February 2030. RPI index values will be calculated using the same methods and data sources that are used to calculate the CPIH (the Consumer Prices Index including owner occupiers’ housing costs). Based on recent economic conditions, this is likely to result in RPI being lower by an average of 1% per annum. Pension schemes (in particular, defined benefit schemes) are likely to be affected in two ways:

  1. a reduction in the value of any RPI linked assets; and
  2. a reduction in any liabilities linked to RPI (for example indexation and revaluation calculated on the basis of RPI).

The overall effect this will have on the funding of a scheme will depend upon the nature of the liabilities in the scheme, how those liabilities have been hedged and the asset portfolio of the scheme.

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