UK – The rate of market-implied inflation has risen in the wake of the recent decision not to amend the retail prices index (RPI) in the UK, increasing liabilities by £20bn (€24bn), according to Mercer.
The consultancy said the change came after the Office of National Statistics (ONS) instead announced a parallel measure of inflation, the UK’s fourth.
Ali Tayyebi, head of defined benefit risk at Mercer, said: “Inaction has meant an increase in market-implied inflation, which has increased pension scheme liabilities by around £20bn.”
However, his colleague Adrian Hartshorn noted that the impact would not be exclusively negative.
“Those organisations with significant matching RPI-linked assets will find that the value of those assets has also increased to help to mitigate the impact of the change in the value of liabilities,” he said.
Hartshorn added that schemes that had triggers in place to buy matching assets based on inflation might also want to revisit those strategies, while funds opting to match consumer prices index (CPI) liabilities with RPI assets should re-evaluate the approach.
The ONS was initially expected to announce a change to the calculation of RPI that would have bought it closer in line with the existing approach to CPI.