By Rob Starr, Content Manager, Big4.com
Steven Dicker, pensions partner at PwC, commented on the announcement that the Office for National Statistics will not make any changes to the Retail Price Index (RPI) calculation, but will introduce a new inflation index know as RPIJ by noting that Companies with final salary pension schemes that were expecting to see liabilities reduce through a change to how RPI is calculated will now be disappointed.
“The good news is that there are a number of options to deal with future inflation, such as indexation changes and directly managing inflation risk. Given the inflation volatility seen over the last 18 months, it’s vital companies and trustees establish a trigger framework for inflation hedging,” he said adding that people with a final salary pension will be relieved at the news that the government will be sticking with RPI as currently calculated.
“Any change to RPI could have meant a drop in the overall value of people’s pensions by 10% or more.”