Forecast Pension Value with annual increases in line with the RPI

seb2020

A fixed pension of £1,333.44 per year including an annual increase in line with the Retail Price Index (RPI).

How to forecast the value of the above pension at these various points?

1/ 5 years.
2/ 10 years
3/ 15 years
4/ 20 years
5/ 25 years

If you are able to answer the above and show me how you have arrived at your figures that would be helpful - Thank you.

AnotherJoe

The value at all points will be £1,333.44.

Thats what an increase in line with RPI means, as much as it means anything, it means its the same in relative terms then, as today.
If I told you in 1980 that a 15p Mars Bar, in 2019 would be 60p you'd think I was mad and no one would buy one, but actually allowing for price inflation and shrinkflation i suspect they are the same value today as they were then.
Or, if you are asking people to forecast what the RPI index will be over the next 25 years good luck with that !

Or is this homework? In which case I think you've missed some details out. Or its a trick question you've been set and I refer you to my initial answer.

Silvertabby

Sorry, my crystal ball is out of batteries.

hugheskevi

CPI is considered to be the preferred measure of inflation.

RPI is expected to be about 0.75 to 1 percentage point higher than CPI on average each year.

CPI is targeted to be 2% in the long-term.

Given the above (assuming a 1 percentage point difference between RPI and CPI), after 5 years the pension will have increased in real (CPI) terms by 5%, after 10 years by 10%, after 15 years by 16%, after 20 years by 22% and after 25 years by 28%.

Calculated by (pension amount * 1.03^x) / (pension amount * 1.02^x) where x is however many years later you want.

This also demonstrates the huge financial significance of shift from RPI to CPI indexation and revaluation of many Defined Benefit pensions back in 2011.

xylophone

huge financial significance of shift from RPI to CPI indexation

Indeed - it is very clear to those with Scheme Pension excess hard wired to RPI but who have their pre and post 88 GMP increases paid through the old state pension mechanism....

Marcon

seb2020 wrote: »

A fixed pension of £1,333.44 per year including an annual increase in line with the Retail Price Index (RPI).

How to forecast the value of the above pension at these various points?

1/ 5 years.
2/ 10 years
3/ 15 years
4/ 20 years
5/ 25 years

If you are able to answer the above and show me how you have arrived at your figures that would be helpful - Thank you.

If it's a fixed pension as you say, then it won't increase.