By Daniel Hunter
Experts are warning that any change in the way the retail price index (RPI), and subsequently consumer price index (CPI) could have severe consequences for private sector pensioners, and some savers and investors.
The Office for National Statistics (ONS) has started a consultation on changes to the calculation of the RPI. In turn these would make the RPI move more slowly, in step with the consumer prices index (CPI).
Pension experts have warned that any changes would cut pensioners' incomes.
Darren Philp of the National Association of Pension Funds (NAPF) said any rewiring of the RPI would have "huge implications".
"Pension funds are major investors in government debt and changes to index-linked bonds could have far-reaching impacts on those investments," he said.
"It could also alter the amount by which pensions being paid to former workers are increased each year."
The ONS is independent of the government and says it wants to see if there is any need to make a change.
The gap has been due to a variety of factors:
- the indexes do not cover exactly the same sets of goods and services with, for example, RPI reflecting the cost of buying and owning a home, whereas the CPI does not.
- the CPI covers the spending of all UK households but the RPI excludes the spending of the wealthy, and those pensioner households who are mainly dependent on the state pension and benefits - together about 13% of the population.
- the two measures use different mathematical formulae to calculate the average rise in the prices of the goods and services being measured.
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