XPS say Defined Benefit Scheme Members will be amongst hardest hit by RPI decision

The Government and the UK Statistics Authority (UKSA) have set out their response to their joint consultation on aligning the Retail Prices Index (RPI) with the Consumer Prices Index plus Housing (CPIH). In it the Government confirmed that the Chancellor will not give his consent for the change before 2030. This passes the decision back to UKSA.

Simeon Willis, Chief Investment Officer at XPS said “The Chancellor’s decision not to provide consent passes the buck back to the UK Statistics Authority. This mitigates the risk that some may accuse the Government of breaking promises to borrowers of UK debt at a time when it has said UK borrowing is expected to reach its highest peacetime levels due to the pandemic response.”

The response also confirmed the Government will not offer compensation to holders of index-linked gilts and the approach UKSA will take effectively changes RPI to align it with CPIH. Simeon Willis said, “Whilst the UKSA’s logic has been explained,  I think an opportunity to avoid winners and losers has been missed in the decision not to pursue an approach that sets RPI at CPIH plus a margin. Based on this decision the biggest losers will include defined benefit members with RPI-linked benefits. Schemes that have CPI-linked benefits hedged using RPI-linked assets will also have seen value been materially eroded today.”