The sterling inflation market was rocked at the beginning of September as letters exchanged between the UK chancellor of the exchequer and the chairs of the UK Statistics Authority (UKSA) and the Economic Affairs Committee created renewed uncertainty around the future of the Retail Price Index (RPI) and a possible switch to a version of the Consumer Price Index (CPI) – the Consumer Price Index including owner occupiers’ housing costs (CPIH).
Subject to a consultation starting next year, the UKSA is ultimately recommending that RPI, which has existed for many years, switches to CPIH, which is a relatively new measure, in the future. This would have significant downward pressure on RPI – in the region of 0.5% to 1.0%. In his announcement of the consultation last week, the chancellor also confirmed that, after 2030, government consent will not be required to alter RPI methodology, potentially leaving its fate beyond this date purely in the hands of the statisticians.
Care and attention is required by pensioners, pension schemes and their advisers in relation to the potential future impact of any reforms.