Week ending 25 January 2019
In very strong terms, the House of Lords Economics Affairs Committee has urged the UK Statistics Authority to fix the most well-known error in the RPI, which is its treatment of clothing prices. This would be likely to reduce the long-term rate of RPI by around 0.3%. The UK Statistics Authority may need to consult the Bank of England and obtain the Chancellor’s agreement to such a change, which the Committee says he should give. The Committee has not requested formula changes elsewhere in the calculation of RPI (i.e. the Jevons versus Carli formula effect), instead saying this “may be a perpetual debate”.
The Committee also wants the Government to choose a single measure of inflation, which includes owner-occupiers’ housing costs, within the next 5 years. In the meantime, it says the Government should stop issuing RPI-linked index-linked gilts and issue CPI-linked ones instead. The Committee’s report is only advisory, but it does increase the pressure on the UK Statistics Authority to propose changes to RPI which could have a significant impact on the funding of DB pension liabilities.
Trustees need professional help on communications
An independent review, following the restructuring of the British Steel Pension Scheme (BSPS) last year, has concluded that its trustees did not communicate effectively with members. Messages were delayed, inconsistent, or contained within complex packs. The limited timeframe for the trustees to communicate the choice open to members and for members to decide was also identified as a key issue (one-fifth of members did not respond and so their benefits are now within the PPF). The review recommended that pension schemes need to embrace digital communication channels, including social media. The DWP and the Pensions Regulator now need to consider how to translate the findings into workable solutions for trustees.
£329 million guarantee for NEST
The DWP announced this week that HM Treasury has agreed, in principle, to give NEST a guarantee of £329 million, in the event of the master trust’s wind up or closure. MPs have 14 parliamentary sitting days to raise any objections to this contingent liability, after which the DWP will provide a ‘letter of comfort’ to assure the Pensions Regulator that NEST is financially stable enough to cover potential costs should it be forced to wind up. This will allow the master trust to apply for authorisation before the deadline of 31 March 2019.