Challenge to reform of RPI rejected

The reform will create winners and losers: defined benefit (DB) pension schemes (and other investors) holding index-linked gilts or other RPI-linked assets could see falls in asset values and deterioration of scheme funding.  In contrast, schemes with RPI-linked benefits could see the value of liabilities fall (and scheme funding levels improve).  

It was common ground in the case that the RPI produces an inflation rate about 1% higher than CPIH and that this will continue in the long term. According to the judgment, the impact of the long-term reduction of 1% in the RPI from 2030 onwards, affecting future interest payments to gilt-holders, is said to be around £90 - £100 billion.

The reform also means that pension scheme members whose DB pensions increase in deferment or in payment in line with RPI (which may be subject to a cap or minimum increase rate) are expected see a reduction in their pension’s spending power.  The Pensions Policy Institute calculated in 2020 that a 65 year old female DB pensioner’s average lifetime loss from the reform of RPI could be around 5%. 

The High Court gave the following reasons for dismissing the challenge to the RPI reform:

• The UK Statistics Authority (UKSA) has statutory power to amend the RPI, including the making of “fundamental changes”, so correcting flaws in the RPI was legally permissible.  The UKSA’s statutory objective was to promote and safeguard official statistics, and there was nothing to suggest that its statutory powers were concerned with protecting any particular investment return.
• The argument that the UKSA had failed to take into account the impact of the RPI decision on legacy users of RPI (or had wrongly decided it could not take the impact into account) was rejected.  The UKSA’s statutory functions did not include evaluating and balancing competing interests; while decisions on the use made of the RPI were for others.
• There was no legal basis for asserting that the Chancellor of the Exchequer was obliged to consult on compensation for users of RPI.  In any case, extensive representations had been made.

Authored by the Pensions Team.