Plan Sponsors Face CPI Quandary

23 August 2012 (PLANSPONSOREurope.com) - Increasing numbers of plan sponsors could move towards using the consumer price index (CPI) from the retail price index (RPI) as means of calculating inflation with regard to defined benefit pension liabilities, Andrew Milligan, Head of Global Strategy at Standard Life has told PLANSPONSOR Europe.

Commenting on the most recent Inflation Report from the Bank of England, Milligan told PLANSPONSOR Europe: “There are some thorny issues that the statisticians are trying to get to grips with about the ways in which the two indices are calculated for example the weighting of clothing and footwear – not just housing some of the components are different. There is a possibility that there will be a larger wedge between the RPI and CPI.

“Those schemes are that are still RPI linked as opposed to CPI linked might find that while they knew there was going to be a wedge between the two that that wedge is wider than they expected. It may be that the pressure and impetus builds up for more schemes to rethink which of the two they are going to go for and move from RPI to CPI. It will not be lower in all circumstances but will generally be lower.

“If the wedge is wider I imagine more companies will be thinking of biting the bullet and moving to CPI even though there are difficulties in doing so.”

PLANSPONSOREurope Staff
editors@plansponsoreurope.com