Funds lose Court fight - In 2030 RPI will be replaced by the typically lower CPIH

Simmet

Funds lose Court fight to stop index switch from RPI to the typically lower CPIH.

Pension Trustees of BT, Ford and Marks and Spencer, brought a judicial review claim against the government over 2030 plans to reformulate the RPI (retail price index inflation) measure and replace it with CPIH, a version of the Consumer Prices Index that includes housing costs and is seen as a better measure of inflation.

Thursday 1st September -  the High Court ruled in favour of the UK government and rejected arguments that the government or UK Statistics Authority had overstepped their authority in making the changes.

So it’s now looking like final salary Pensioners in DB schemes, will have lower pensions from 2030 onward - 

The Pensions Policy Institute estimates that the impact on pension holders will be felt the greatest for those with final-salary pensions. It also estimated the average reduction in lifetime income from an individual’s RPI-linked pension post-retirement could be 5% for a woman and 4% for a man (based on a 65 year old in 2020). Women will generally experience a greater lifetime reduction in overall pension benefit, as they live longer than men, on average.

taktikback

My Final salary scheme says RPI or "suitable equivalent measure" should the index cease to exist. Presumably there will be other schemes that do that.

The government can stop publishing  RPI , but I'm not sure that means schemes couldn't just carry on using a similar synthetic measures?

Also - I fail to see how a discriminatory spin i.e women vs men can be put on it. Most people would recognise that living longer is a benefit...

QrizB

Are CPIH-linked annuities available to buy today? How do the rates compare to RPI-linked ones?

sandsy

taktikback said:

My Final salary scheme says RPI or "suitable equivalent measure" should the index cease to exist. Presumably there will be other schemes that do that.

The government can stop publishing  RPI , but I'm not sure that means schemes couldn't just carry on using a similar synthetic measures?

Also - I fail to see how a discriminatory spin i.e women vs men can be put on it. Most people would recognise that living longer is a benefit...

RPI will still be published but it will be calculated the same way as CPI-H. Therefore, your final salary scheme will still grant you RPI increases but they will be lower than if the methodology for RPI had not been changed. 

Andy_L

Simmet said:

Funds lose Court fight to stop index switch from RPI to the typically lower CPIH.

Pension Trustees of BT, Ford and Marks and Spencer, brought a judicial review claim against the government over 2030 plans to reformulate the RPI (retail price index inflation) measure and replace it with CPIH, a version of the Consumer Prices Index that includes housing costs and is seen as a better measure of inflation.

Thursday 1st September -  the High Court ruled in favour of the UK government and rejected arguments that the government or UK Statistics Authority had overstepped their authority in making the changes.

So it’s now looking like final salary Pensioners in DB schemes, will have lower pensions from 2030 onward - 

The Pensions Policy Institute estimates that the impact on pension holders will be felt the greatest for those with final-salary pensions. It also estimated the average reduction in lifetime income from an individual’s RPI-linked pension post-retirement could be 5% for a woman and 4% for a man (based on a 65 year old in 2020). Women will generally experience a greater lifetime reduction in overall pension benefit, as they live longer than men, on average.

Some final salary pensions.

Lots of Private Sector DB pensions scheme rules specified the same increase as applied to public sector pensions. That changed to CPI several years ago so they have already had lower pensions

jsinc

QrizB said:

Are CPIH-linked annuities available to buy today? How do the rates compare to RPI-linked ones?

Bump. Can't find anything online about retail market quotes for CPIH-linked annuities, or whether the 2030 change is really priced into today's RPI-linked annuity quotes/rates.

Pensions_matter_2

There was nothing in the consultation documents or government response about retail RPI linked annuities. I fedback to the consultation as I have RPI annuity income (including raising a point about fair communications to prospective purchasers going forward who may not realise the change is going to happen) but the point was completely ignored in the response. Focus was on the big pension schemes only. Thats the problem when you are not a large firm or scheme with significant vested interest able to argue against the proposls - individual annuitants are scattered with no overall representation. 

jsinc

Pensions_matter_2 said:

There was nothing in the consultation documents or government response about retail RPI linked annuities. I fedback to the consultation as I have RPI annuity income (including raising a point about fair communications to prospective purchasers going forward who may not realise the change is going to happen) but the point was completely ignored in the response. Focus was on the big pension schemes only. Thats the problem when you are not a large firm or scheme with significant vested interest able to argue against the proposls - individual annuitants are scattered with no overall representation. 

Sorry to hear that and thanks for also raising the fair communications point - generally and because I have a family member soon approaching inflation-linked annuity quote time to meet their retirement income floor.

I agree prospective individual purchasers may/will get shafted too. Think I can only suggest they wait for clearer quotation info or ringing around to ask brokers/firms.

Problem is they're impossible to price oneself without access to industry mortality + medical + escalation + assumptions data, so we couldn't even verify that a verbal or written assurance honestly prices in the 2030 change.

Could really do with the market introducing and publishing separate CPIH-linked rates asap to draw conclusions and make decisions.

Pensions_matter_2

I suppose there may always be the (slim!) chance the government dont go ahead with this, or postpone it, so may be they are waiting till nearer 2030 before changing the way providers will need to communicate (or indeed price this change in). Doesnt seem fair at all and as you say annuitants will be shafted. 

Pensions_matter_2

Unfortunately the vast majority of annuitants will be completely unaware of this developmwnt (may be thats what the government is banking on). It might be worth writing to the FCA about the issue.

jsinc

Pensions_matter_2 said:

i suppose there may always be the (slim!) chance the government dont go ahead with this, or postpone it, so may be they are waiting till nearer 2030 before changing the way providers will need to communicate (or indeed price this change in). Doesnt seem fair at all and as you say annuitants will be shafted. 

That uncertainity is why I doubt providers are even pricing the change into today's RPI quotes. But without significant collective representation, as you highlight, will be very difficult for scattered individuals to achieve any prompt resolution b/c 1) Sellers will just point to Government and/or vague contract terms; 2) Annuity purchasing market has shrunk so part of a declining group of older buyers who can be strung along with promises of litigation or legislation until it's increasingly and conveniently too late to matter to authorities.