How are ILSC valuations calculated?

hallmark

Does anybody know the formula for valuing an NSANDI ILSC? In other words, I can go to the website today and enter the relevant info and get a valuation.  At some point tomorrow the CPI & RPI figures will be issued, the CPI INDEX (currently 109.2) and the RPI INDEX (currently 295.4) will be updated. Later tomorrow the calculator will be updated.  However does anybody know what formula is used?
In other words is it possible to say "if the CPI figures are 0.6% then the CPI INDEX will change from 109.2 to 1xx.x"
I do know the valulation is only ever an estimate but I'd still like to understand how the INDEX figure is calculated. I have never been able to work out how.
Thanks

eskbanker

The percentage increase figure compares the value of the index in February 2021 with its value in February 2020, so the January 2021 figure isn't part of that calculation, i.e. forget about the 109.2 value.

The ILSCs will follow the index itself (not the annual increase figures that get all the publicity), hence the name....

hallmark

Thanks.  So that makes sense that it compares a given month with a year previous.  Is there anyway to calculate what the index will be based on the monthly update.  I.e. given the info we know currently, if tomorrows figure for last month was 0.6%, then is it possible to calculate what would the Index be?

Thanks again

eskbanker

hallmark said:

Is there anyway to calculate what the index will be based on the monthly update.  I.e. given the info we know currently, if tomorrows figure for last month was 0.6%, then is it possible to calculate what would the Index be?

If the annual increase figure is 0.6% again, then that would mean the index is 0.6% higher than it was a year ago, so look out the January 2020 (published in February) index value from the ONS site and add an extra 0.6% to it.

hallmark

Thanks. That makes sense, playing around with some figures:
Current CPI INDEX (as of 2020 DEC) 109.2
2020 JAN figure 108.2
Possible prediction for tomorrow 0.6%
So if that prediction was correct, the CPI INDEX would change from 109.2 to 108.8 and estimated valuations of ILSCs done tomorrow afternoon will actually be less than if done today (which I know happens  fairly often).

Croeso69

hallmark said:

Thanks. That makes sense, playing around with some figures:
Current CPI INDEX (as of 2020 DEC) 109.2
2020 JAN figure 108.2
Possible prediction for tomorrow 0.6%
So if that prediction was correct, the CPI INDEX would change from 109.2 to 108.8 and estimated valuations of ILSCs done tomorrow afternoon will actually be less than if done today (which I know happens  fairly often).

Need RPI for the older issues, might be better than CPI by quite a bit!

eskbanker

As you recognise, in-year valuations are only estimates and the actual value is only updated annually, at which point there is no reduction if the index has dropped, as per the explanation at https://www.nsandi.com/files/asset/pdf/index-linked-savings-certificates-key-features.pdf

Index-linked growth and interest

Each year the investment’s value moves in line with a measure of inflation called the Consumer Prices Index (CPI). We also add interest each year. 

The index 

We use the Consumer Prices Index (CPI), as published by the Office for National Statistics. If they stop publishing this index then we may use a different index. 

To find out more about CPI, visit the Office for National Statistics website at ons.gov.uk and search for CPI All Items Index. 

Index-linked growth 

On each anniversary of the date you invested we will add an amount to your Certificate to reflect any overall increase in the CPI. We call this your index-linked growth. 

To calculate your index-linked growth, we multiply the value of your Certificate by the percentage increase (if any) in the CPI over the investment year. To calculate the percentage increase over your investment year, we look at the index at two points in time – two months before the start of the investment year, and two months before the end. (We use the index value from two months earlier because the index takes time to be compiled and published.) 

If there is a decrease in the CPI, the value of your Certificate will not reduce.