Five ways the change from RPI may impact you and your pension


It doesn’t matter if you are an employer or a DB pensioner or a DC saver, the Government’s decision to move from RPI to CPIH in 2030 will almost certainly impact you. The winners in this will be the Treasury, and in as much as the Treasury gets its money from tax , the tax-payer. The move to CPIH relieves the Treasury of obligations to pay out on RPI linked gilts (linkers) after 2030 and that will feed through to a happier Treasury and sadder pensioners.

But how will all this evidence itself to the likes of me and you?

  1. Some pensions will be smaller than expected from 2030. CPIH typically is lower by 1% pa than RPI so this is like getting a lifetime paycut of 1% pa. That will typically add up to around £8,000 per person less – from their pension.
  2. This will no doubt be reflected in transfer values which will reflect lower future liabilities and so will be smaller.
  3. If you are in a DC pension and in the lifestyle stage (typically within 10 years of when the scheme expects you to retire) you may well be invested in an annuity protection fund which will be invested in linkers, the value of your linkers will fall, if they are expected to pay RPI after 2030 (that’s because they won’t)
  4. If you are an employer who has been investing in linkers to protect yourself against your RPI liabilities, you are going to find that a large amount of the price you paid is wasted, you won’t get the RPI linkage, you’ll get 1% pa less, meaning that you’ve overpaid for your insurance.
  5. Whether you are an employer, or a pensioner or a DC saver, who is expected to be out of pocket over this, tough. You’ve been mis-sold gilts as RPI linkers if their duration is beyond 2030 and that’s all there is to it.

On top of all this of course are changes to the way prices go up and they are likely to continue to rise as they always have. You will simply lose some ability to keep on top of price inflation.

A lot of angry people…

People who buy gilts expect to be buying into a risk-free security. But the linker isn’t risk free, it can mutate from RPI to CPIH at the swish of Rushi Sunak’s pen. This risk is not made clear to people who are buying linkers – either by Government or by intermediaries like the firms setting up “de-risking strategies” – the consultants and asset managers selling Liability Driven Investment (LDI).  Already Insight investment management has been protesting about what has happened , presumably on behalf of their clients. Their clients may be angry at more than Government.

I am a pensioner and I will take a haircut on my pension in my 70s , 80s , 90s and hopefully beyond (I’m not doing all this keep-fit for nothing). I am pretty cross as I had been banking on my gold plated increases and now discover I’m getting chrome instead. Not much sympathy for me perhaps, but the real price of this downgrade in indexation will be paid by people who have pensions due to them.

Are we right to be angry?

Well this change has been well flagged, it has been consulted on and frankly this is not the worst option presented to us (we could have lost RPI linkage in 2025). The Government can move the goalposts on these things as they like and this is a well-defined “political” risk.

What is more worrying is that the strategies that have been pursued by Government departments and agencies, most notably DWP and tPR have been to promote the lockdown of liabilities by matching them with assets. This means buying linkers at inflated prices because of another Government policy (QE) and now finding that those prices were doubly inflated as the things purchased don’t do what they say on the packet.

People have every right to be angry if they find themselves in these duff gilts through no choice of their own and I expect trustees promoting default funds stuffed full of linkers for those in the final years of lifestyle will have a bit of explaining to do.

But in the end , Government can and will  do what it wants. You may think this is a God -damned shame – but you voted them in.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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9 Responses to Five ways the change from RPI may impact you and your pension

  1. Mike Post says:

    Hi Henry
    This will in fact be a default on the Government’s Index Linked debt obligations. The Government may, as you say, do as it wants, but there will be consequences. Way back in 1984 (before the Chancellor’s 4th birthday) the Government made promises to BA pensioners that, in exchange for large cash lump sums and higher pension contributions, they would receive RPI-protected pensions for the whole of their lives. That promise will be broken in 2030 just at the time when many of those pensioners will need the RPI protection that they paid for. This will not end well for the Government.
    Mike Post

  2. Mark Andrew Meldon says:

    And those with RPI-linked annuities?

  3. henry tapper says:

    Yes – those too = a sixth!

  4. ConKeating says:

    I love the way they are doing this – it is not a move from RPI to CPIH, but recalculating RPI as if it were CPIH – and unless the Bank of England says that is a material change, eliminates any possibility of claiming this as a default. Still wannabuy those ‘risk-free’ gilts, as per TPR’s proposed Code??

  5. DR Robin Rowles says:

    I am only too well aware of the problems mathematicians have with RPI and so could easily argue that this means the fault with all of this lies with mathematicians for not stopping the government when RPI was originally introduced, rather that shutting the gate now after the horse has well and truly bolted. However, as I understand it, the Chancellor is not suggesting that there is a problem with the calculaion method (there is) so it must be changed. The Chancellor and others are promoting this change because it will save the Government money and therefore reduce the need for increased taxation elsewhere. The fact that it will in time empoverish poorer pensioners appears to be irrelevant to them. In any case, what relevance has any prices index have for pensioners? My 91 year old mother-in-law has yet to go out and buy an iPad and probably has no idea what “on-line” means. But after all, our dearly beloved Chancellor doesn’t have a background in anything to do with Pensioners, does he? So why should he and the government care? Well, actually they should care and care very much. Because it is pensioners who have the time to shop, spend, visit leisure places, etc, etc. And they spend money in the UK, bringing in tax revenues to the exchequer. Unlike much younger voters, whose on-line shopping does little or nothing for the exchequer, well not in the UK anyway!

  6. ConKeating says:

    By the way Dennis Leech gas an interesting academic note showing CPI to be low-biased.

  7. Pingback: No blubbing over the future of RPI please. | AgeWage: Making your money work as hard as you do

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