Hopes Of Halving Employer Contributions Dashed
09 October 2012 (PLANSPONSOREurope.com) – Low gilt yields mean UK proposals to bring its inflation measures together will not reduce sponsor contributions by as much as predicted, actuaries have warned.
Yesterday the UK’s Office for National Statistics launched a consultation on proposed changes to how the flagship Retail Price Index (RPI) is measured.
One of the proposals is to bring the way it is calculated in line with the Consumer Price Index (CPI), which would bring it down from a current average spread of approximately 1%.
On its own, this measure would effectively half private sector deficits, from approximately £200bn, and employer contributions with them, according to analysis from LCP actuaries.
But the Jonathan Camfield, a partner at the firm, warned the effect of the change on index-linked gilt yields would dramatically reduce its impact on deficits.
“Companies should not assume that their deficits will reduce or that lower contributions will be needed for the foreseeable future; in some cases deficits and contributions could in fact go up because of the change, whilst in other cases they would probably reduce,” he said.