On the go: More than a third of pension professionals support a switch from the retail price index to the consumer price index incorporating owner occupier housing costs with no compensation, new research shows.
A survey of 143 respondents by the Society of Pension Professionals showed, however, that there are split views in the industry. While 42 per cent of experts supported the change, 29 per cent said there should be compensation, and the same number said there should be a switch to an adjusted index (for example, CPI plus 1 per cent).
Former chancellor Sajid Javid announced the intention to merge both inflation measures in September 2019, with a consultation due in January 2020.
However, in January Mr Javid announced that the consultation will be launched alongside the UK Budget in March, with a response expected before the parliamentary summer recess.
RPI generally runs at about 1 percentage point higher than CPI and is currently at 2.7 per cent, compared with 1.8 per cent for CPI. Compounded over the years, the choice of the less generous index can result in pensioners losing thousands of pounds, despite the CPI being considered a more accurate index.
When it comes to timescales, nearly half of respondents (46 per cent) said reform should take place by 2025, while the majority (60 per cent) said it should not happen until 2030.
The survey also asked respondents to rate on a scale of one to five some of the most serious issues that are likely to impact the pensions sector as a result of the changes.
The impact on funding positions and a fall in asset values was cited as the greatest concern, with a weighted average rating of 3.40, followed by a reduction in members’ benefits (3.30) and difficulty in hedging effectively (3.18), the research showed.
According to Paul McGlone, president of The Society of Pension Professionals, the survey showed that “there is still a lack of consensus on the most suitable replacement for RPI or the timescales for implementing change”.
“This isn't surprising given the very different impacts that the change has on schemes, sponsors and members,” he noted.
He added: “Hopefully the imminent consultation, due to be announced in the Budget, will allow the industry to coalesce around a suitable approach.
“Failure to implement the right reform in a timely fashion could be very damaging to UK pension schemes and their members. We would encourage all corners of the industry to engage with the consultation when it launches.”
