There is a potential danger in moving the RPI and CPI closer together as the market may fluctuate and charge a higher risk premium on UK gilt investment.
(PRWEB UK) 25 October 2012
Under government plans to alter how the Retail Price Index (RPI) is calculated, pension income, gilt returns and annuity rates could be affected.
Scott Mullen from My Pension Expert said, "If the plans to have the RPI at the same level with the consumer prices index (CPI) go through, this could see pensioners and some investors receiving a lower return."
The Consumer Price Advisory Committee has put three different ideas forward to bring the RPI and CPI closer together, which could see the Treasury saving £3bn a year in debt interest payments.
"However, these new plans could pose a wealth of problems for bondholders. RPI calculates returns on British gilts and yearly rises in some private pensions. Crucially, this means it could inadvertently lower annuity rates."
Jonathan Gibbs, from Standard Life, recently commented that there is a potential danger in moving the RPI and CPI closer together as the market may fluctuate and charge a higher risk premium on UK gilt investment. RPI usually is 0.5% - 1% higher than CPI.
The plans put forward will be analysed and discussions will be undertaken with the public with the ONS publishing its recommendation in January 2013.
Scott Mullen of My Pension Expert the annuity experts said "It never rains, it pours in terms of expectations for annuity rates. This latest news will only add to the mounting pressure on newly retiring people in the UK."
My Pension Expert is a company of Diploma qualified Independent Financial Advisors who specialise in the at retirement market.