CPI and RPI

Mirador

If these two indices should turn negative, does that mean that the value of a deferred DB scheme pension would fall, when the measure is applied ?

hugheskevi

It depends on scheme rules.

If it is public sector then Pension Increase cannot be negative.

Under private sector statutory minimum revaluation (which some schemes may follow, but others will have rules to pay more than this) the total adjustment to the pension at date of leaving cannot be negative (the adjustment compounds over the years of deferment). However, if CPI was negative, this could reduce any increase due from earlier years of deferment.

For example, someone leaves service with a pension of £1,000 p/a, is deferred for a year then payment commences. If CPI in the revaluation after leaving is negative, the pension stays at £1,000 p/a. But if their pension has increased from £1,000 to (say) £1,500 and then CPI is negative, the pension will be reduced from £1,500.

So for many individuals the amount of pension can effectively fall under statutory minimum revaluation. Although in a legal and technical sense, as the revaluation is only applied once, it has not fallen and remains a single positive adjustment.

kidmugsy

Suppose you have an ns&i ILSC. If the RPI increase over an anniversary year falls below zero, your RPI-linking doesn't follow it into negative territory, but sticks at zero. And you still get your interest payment. No wonder they're not selling them any more (except to the lucky souls who are rolling over old issues).

greenglide

No wonder they're not selling them any more (except to the lucky souls who are rolling over old issues)

So when mine matures (next year I think) I may be able to put the money in a new one even though they are not being advertised? Hmmm.

I have a Virgin (started out as Northern Rock) stepped ISA which is paying 6% in its final year (4.25, 4.5, 5, 5.5 and 6%) - do you think they could be persuaded to roll that one over?

Cyberman60

I'm glad I took my DB pension early as I'm guaranteed RPI or 3%, whichever is the higher.

JezR

greenglide wrote: »

So when mine matures (next year I think) I may be able to put the money in a new one even though they are not being advertised? Hmmm.

Yes, but the interest rate is RPI+0.05%

kidmugsy

JezR wrote: »

Yes, but the interest rate is RPI+0.05%

Which with the current rate of RPI inflation would be 1.05% p.a., not bad when it brings with it 5 years' worth of insurance against a return to higher inflation. More irksome is how much more inflexible the new-style certificates are compared to the old. I'm sure many people will give up on them.