Maintain RPI - head statistician
Pensioners have been given some welcome news after the UK's top statistician said a key measure of inflation linked to retirement income and a raft of other investments and services should remain unchanged.
She recommended that a new index should be created from March, called RPIJ, which would use a different way of calculating the prices of goods and be closer aligned to the UK's benchmark level of inflation, the CPI (Consumer Prices Index).
There had been fears that changes to RPI calculations would see the index rise at a slower pace, which would have far-reaching implications as the index is linked to a wide variety of services and investments, from water bills and rail fares to pensions and even national debt.
There were concerns in particular for pensioners, as many annuities are linked to RPI and even a small percentage change could knock thousands of pounds off a typical 20-year retirement income. Many private pensioners also have their annual increases linked to RPI, while returns for investors with index-linked bonds and savings certificates are likewise based on the index.
The RPI review had also attracted controversy, as any change prompting a fall in the index would have provided a boost to Chancellor George Osborne and his debt-busting plans, saving the Treasury billions of pounds a year in interest on Government bonds.
Pensions expert Ros Altmann, director-general of Saga, said the decision not to alter RPI was "excellent news". She added: "To have radically changed the traditional inflation measure, on which many people's incomes depend, could have jeopardised the inflation protection inherent in many people's income arrangements."
While there was relief from pensioners and savers at her decision, it came as a surprise to many experts who had expected a radical change.
Philip Shaw, economist at Investec Securities, said: "We are surprised that the ONS has rejected the opportunity to fix the well-discussed flaws in the RPI and are a little dismayed that we will have yet another measure of inflation to contend with."
He said it was also surprising, given that the ONS has in the past made noticeable changes to the rate of inflation, such as the way clothing prices are calculated in 2010, which was a major reason behind the leap in the formula effect gap.