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Pensions indexation: time to say goodbye to RPI?

Both the Retail Prices Index (RPI) and the Consumer Prices Index (CPI), the indices most used to calculate increases to pensions in payment and the revaluation of deferred pensions, are often criticised.

RPI's criticism is mainly based on its use of a formula which gives it a perceived upward bias over true inflation, while CPI has been criticised mainly because it does not take account of owner occupiers' housing (OOH) costs.

The choice of RPI or CPI can have material implications on the value of a scheme's liabilities.  A switch from RPI to CPI can save an employer significant amounts of money.

Unfortunately for employers, many pension schemes have the use of RPI ‘hardwired’ into their rules, meaning that they cannot change to another index without making a formal amendment. 

It has been recognised for some time that RPI is not fit for purpose. In January 2013 the Office for National Statistics announced its conclusion that the RPI did not meet international standards and it is no longer formally ranked as a UK 'National Statistic'.

In March 2019 the UK Statistics Authority (UKSA) proposed changes in the law:

  • to abolish the publication of the RPI; and
  • to introduce a new variant of CPI which includes OOH costs (known as CPIH) to be used instead of RPI.


In September 2019 the Chancellor, while rejecting the proposal to abolish RPI, confirmed that in early 2020 he will consult on whether to align RPI with CPIH at some point between 2025 and 2030.

Since CPIH is likely to produce lower figures than RPI, alignment of the two indices could certainly be good news for employers of pension schemes where RPI is ‘hardwired’ into their rules, since no rule amendment would be necessary to make the switch.   This would open the doors to lower pension increases and lower revaluations in deferment, with a resulting reduction in the value of scheme liabilities and an impact on transfer value and buyout quotations. 

As a measure of inflation, CPIH is likely to produce higher figures than CPI, and it remains to be seen whether CPI will then continue to be used by government as the statutory measure.  If not, then this will also impact on those schemes that use ‘the statutory measure’ or similar wording.

How we can help you

Clearly, it may be several years before any changes are made.  In the meantime however, we recommend that, if you have not already done so, you review your scheme rules to see what the indexation provisions say.  If your scheme has RPI ‘hardwired’ into the rules then you may well have to await the alignment of RPI with CPIH.  However, this might not be the case.

Some schemes have more ambiguous provisions that may be difficult to interpret.  There have been several recent court cases brought by employers wishing to move away from RPI, and by trustees needing to know where they stand.

We can help you by reviewing your documentation and advising you on your options.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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