RPI to be reformed in 2030 but no compensation for gilt holders

James Phillips reports

The Retail Prices Index (RPI) will be reformed and aligned with the housing cost-based version of the Consumer Prices Index, known as CPIH, by 2030, the Treasury has confirmed.

As part of the Comprehensive Spending Review today (25 November), the government announced that the methods and data sources of CPIH would be brought into RPI in February 2030, after the date of the maturity of the final specific index-linked gilt that year.

While the Treasury had consulted on making this change earlier, in the response published today chancellor Rishi Sunak said he would withhold the consent necessary before 2030 in order to minimise the impact on the holders of index-linked gilts.

Nevertheless, the government has refused to offer compensation to index-linked gilt holders, noting that there would be no change to the contractual terms with RPI still being used to determine the index ratio.

As the consultation closed to responses in August, it was warned that investors could face a fall in asset values of up to £130bn depending on the breadth and pace of the reform.

The Pensions Policy Institute predicted a £60bn hit to scheme investments of a 2030 implementation date, while the Pensions and Lifetime Savings Association estimated a 17% drop in income for a man aged 65 this year if the change was made in 2025.