Annuity change of calculation from RPI to CPIH

Tiger007008

As many of you will be aware, in February 2030 the calculation for RPI will be changed to be the same as CPIH.  The term RPI will remain in existence but it will effectively be CPIH. CPIH typically runs between 0.5% and 1.0% lower than RPI. For long term holders of RPI annuities it is unclear if there will be any redress to compensate for the lower returns.

I am currently looking at taking out an RPI linked annuity and have deep concerns over how these are priced by Annuity Provider actuaries today.  If the APs are genuinely competing for business then you would hope that they price these products by taking into account that the level of return reduces as a result of CPIH after Feb 2030, resulting in a lower price for the annuity than if it was RPI indefinitely.  But I cannot be sure of that, my concern is they all price on the basis the RPI calculation is not changing and I find I could have got a much better deal in Feb 2030. I have spoken to a few IFAs who are equally unclear.  It would require a conversation with an Acturarial department to be sure and I doubt they would talk to the end customer.  

Any opinions on this issue would be greatly appreciated.

Alexland

An inflation linked annuity will be priced and underpinned by long term inflation linked gilts (government debt) which are also moving away from RPI in 2030 and there is no compensation to bond holders so basically the government gets to soft-default on some of their debt obligations, the annuity provider probably still makes the same % profit margin and the annuity holder ends up getting lower increases.

That's public knowledge so already priced into IL gilts and therefore annuity prices. Its just a bit rubbish for people who had already bought IL gilts and annuities.

On the plus side if you haven't yet bought IL gilts or an annuity the yields are much better due to unrelated economic conditions.

It really sucks to have bought IL gilts when prices were higher / real returns were negative and on the expectation of RPI increases.

gravel_2

Hasn't there already been a JR about it?

https://www.linklaters.com/en/knowledge/publications/alerts-newsletters-and-guides/2022/september/06/rpi-judicial-review-replacement-index-given-green-light-for-2030

MyRealNameToo

As you say, RPI will still exist just its calculation method will change. Like when it changed in 2010 when how clothes were considered in RPI was changed. Like then there will be no need for anyone to give any consideration for the winners and losers out of the process.

As mentioned above, some trustees already went to court to challenge it given their heavy investment in RPI gilts etc and the judge determined the law allows the change

RogerPensionGuy

A timely thread for me, thanks OP. 

My understanding is a person buying an RPI annuity now or in the future won't be disadvantaged in 2030, the annuity providers are aware of thd 2030 changes and this data is all factored in to the deals. 

As talking about annuity providers, I'm amazed at the difference between the different providers, I'm in the process of buying one(zero enhancement) I'm seeing a 9% split on value between the top 6 providers, that's a big difference.

A 9% split on day one and RPI over hopefully a few decades is a lot value cash going adrift. Scottish Windows are normally the best offerings and JUST 2nd best normally, but JUST are best on some quotes.