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[uk_rpi]

This website is entirely our own creation and has nothing to do with any of Jon's former employers. Not only do we accept all responsibility but also we assert all rights over site content. There may be a little repetition but we don't know which route you'll take. Several pages are fairly short - deliberately. Nothing on this website constitutes “advice”.

This website is about “estimating” long-term UK inflation for UK DB pension schemes. Apart from explaining why we think it is important, we shall share our tentative conclusions about how we might do it. No, we really don't think we know all there is to know but noone else does either. What we have done is to look at the evidence rather than merely rely upon what everyone else is thought to be doing. Some related material used to be shown at FRS17 but it is now shown here instead.

An extremely widespread misconception about actuaries is that they claim to be able to foretell the future. We try, briefly, to explain why that cannot be true and we look at the illusion that today represents the long-term future.

We'll discuss why we need to bother trying and why the common UK approach just hasn't worked. Then, apart from considering the relative performance of ILGs against conventional gilts, we'll look at alternative UK indices and then draw our tentative conclusions. Last year, we added CPIH to RPI and CPI but index-linked gilts are currently still linked to RPI. Indeed, the Bank of England indices are also assessed against RPI but we know that will be changed. We intend to continue extending the analyses over time.

As Henry Higgins tried to point out, there are differences between the CPI and the RPI. On 08 October 2012, ONS launched a consultation on modifying the RPI. In the event, it was decided that RPI would remain as it was. However, since then, ONS have also decided that RPI is no longer statistically appropriate.

As noted by the House of Lords Economic Affairs Committee in January 2019, by not fixing RPI, the UK Statistics Authority could be in breach of its statutory duty to safeguard official statistics. The Authority said they had not asked the Chancellor to approve fixes to RPI because they expected he would say no. On the other hand, the Treasury said they could not act because no request had been submitted. Given such a ridiculous merry-go-round, the House of Lords Economic Affairs Committee stated that the UK Statistics Authority should submit a request immediately, and that the Chancellor should consent; no request was actually submitted

Even so, so many schemes are still, to some extent, linking pension increases to RPI that it remains hugely important. Indeed, the whole ILG market is still formally linked to RPI, which we thought would be frighteningly hard to unscramble even though it could be interesting. A consultation was launched in the Budget on 11 March 2020, with responses welcome until 21 August 2020 (extended due to Corona). It seems that the favoured solution is really very simple but, arguably, less than fair to investors.


Over the last year, for different reasons, inflation has been substantially increasing. This, of course, makes estimating inflation more important rather than less so.


Con & Jon (updated 11 Jun 2023)