The venerable Retail Prices Index (RPI) has its roots in the 1940s and is nowadays widely considered to be a flawed and unreliable measure of inflation. However, in a ruling of importance to employers and pension scheme administrators, the High Court has confirmed that it is still very much alive.
The case concerned a company pension scheme with assets valued at £585 million. A definitions document attached to the deed by which it had been governed since 2011 stated that pensioners’ benefits would be increased annually in line with the general index of retail prices (all items) published by the Office for National Statistics (ONS).
If that index ceased to exist, or was no longer published by the ONS, the company and the scheme’s trustees were empowered to agree that another index be substituted. The substitution of the Consumer Prices Index (CPI), the application of which generally results in a lower measure of inflation, would achieve a very substantial reduction in the scheme’s future liabilities.
Ruling on the matter, the High Court noted that the origins of the RPI could be traced back to 1947. Until 2010, the government had used it for almost all purposes of uprating. However, by 2013, the ONS was describing CPI as the main measure of inflation. In 2015, the UK Statistics Authority (UKSA) stated that the RPI did not meet the required standards for designation as a national statistic.
However, the Court ruled that talk of the demise of the RPI is premature. UKSA, of which the ONS is an executive agency, still compiles, maintains and publishes the RPI, if only because it is obliged to do so by Section 21(1) of the Statistics and Registration Service Act 2007. Current indications are that the RPI will continue to be published until at least 2025 and possibly until 2030.
The Court found that the index referred to in the definitions document was clearly the RPI and that the circumstances in which the CPI, or some other index, could be substituted for it had not as yet arisen. The scheme’s trustees are thus obliged to continue to calculate annual increases in pensioners’ benefits by reference to the RPI until such time as it ceases to be published by the ONS for any purpose.
