CPIH is to become the preferred method of UK consumer price inflation from March 2017, according to a statement issued by the National Statistician on 10 November 2016. This follows a wide-ranging and long-lasting process of consultation and consideration. But what will be the impact on UK pensions?

Pension inflation measures have been in the news a lot recently (see this Pensions Expert report). In July the gap between CPI and RPI grew to its highest level for 5 years, with the 1.3% disparity a particular concern for the sponsors of pension plans that have RPI hard-wired into their rules.

The prospect of an appeal in the Barnardo’s case gave a crumb of comfort to those employers who were hoping that RPI could be treated as “replaced” even though it continues to be published. However, the Court of Appeal judgment in November upheld the earlier decision that as long as RPI exists it has not been replaced.

Now, we finally have some output from the consultation on consumer prices that closed over 12 months ago. In summary:

  • CPIH (which includes an element of housing costs) will become the preferred measure of consumer price inflation from March 2017, giving it a higher status than CPI.
  • RPIJ (a variant on RPI) will cease to be published from March 2017, but RPI will continue to be published given that it continues to be used very widely.

The main pension question arising from the statement is whether CPIH will replace CPI as the statutory basis for pension inflation. The BBC reports that the Treasury has no plans to adopt CPIH for pension uprating purposes, but former Pensions Minister Steve Webb has said on social media that CPIH should now be used by the Treasury for these purposes.

As CPIH is typically higher than CPI, it would add to the cost of pension provision and therefore frustrate the sponsors of plans who have been able to move to CPI. However, the reduced gap with RPI may lessen the blow for sponsors of plans that are stuck with RPI.

What binds all interested parties together is a desire for certainty, and so it would be helpful for the Treasury to make a public statement on the issue, either in this month’s Autumn Statement or otherwise