Women and younger pensioners would experience the greatest reduction in overall pension benefit under the government’s proposed reform to the Retail Prices Index (RPI), according to the Pensions Policy Institute (PPI).

The government is consulting on aligning RPI with the Consumer Prices Index plus owner occupiers’ housing costs (CPIH) beginning sometime between 2025 and 2030. RPI has been inflating around 1% faster than CPI, with CPI and CPIH generally inflating at a similar rate over time.

In a new report, PPI weighed the impact of the proposed changes on defined benefit (DB) scheme members, investments, liabilities and funding positions.

As concerns members, it said a 65-year-old female DB pensioner’s average lifetime loss from the switch to CPIH could be between 5% and 9% depending on the date of the change, and for a 65-year-old male pensioner the average loss could be between 4% and 8%.

Daniela Silcock, head of policy research at PPI, said that although women and younger pensioners would see the greatest proportion of their overall lifetime pension reduced as a result of the changes, older pensioners would also struggle with a reduction in benefits a they had less opportunity to make up income deficits.

Market volatility and declines given the current coronavirus-related economic shutdown would only compound matters.

“In light of current events it’s worth the government thinking particularly about the impact on older pensioners and on women and younger pensioners who are going to see degradations to their other pension savings,” she told IPE.

The PPI said the total value of the bond-related impact on DB schemes of a switch to CPIH could be a reduction in value of £60bn-£80bn, depending on when the switch is made.

The overall effect of the change was likely to be an increase in scheme deficits, it said.

“The PPI’s figures are an important contribution to the policy debate”

Tiffany Tsang, policy lead for DB and LGPS at the PLSA

Tiffany Tsang, policy lead for DB and LGPS at the Pensions & Lifetime Savings Association, said the PPI’s figures were “an important contribution to the policy debate” about the reform.

“Workers’ savings must not be unduly compromised by an administrative change in the measure of inflation that acts, in effect, as a stealth tax on retirees,” she said.

“Any change should therefore necessarily be offset by fair and appropriate mitigation for schemes.”

Cost transparency compliance system live

The compliance and reporting system to support a cost transparency drive for the local government pension scheme (LGPS) system has gone live today.

The Scheme Advisory Board (SAB) for the LGPS said Byhiras, the tech firm it hired in September, had delivered the system on schedule and that all local authority pension funds and asset pools had been “on-boarded”.

The platform is intended to help LGPS funds monitor asset managers’ compliance with the LGPS cost transparency code developed by local authorities and launched in 2017.

Councillor Roger Phillips, chair of the SAB, said the system “takes the LGPS Code of Transparency to the next level.”

“It is especially important in the challenging market situation we currently face that the LGPS is able to demonstrate the value provided by its investments,” he said.

Sam Lusty, chief executive officer and founder of Byhiras, said: “The implementation of the SAB system provides each LGPS fund and pool with access to information on costs from different investment managers through a single service for the first time, helping them to deliver cost savings and improve investment outcomes.”