Reforming the Retail Prices Index

There are currently three recognised ways that the ONS uses to measure price inflation:

• Consumer Prices Index (CPI);
• Consumer Prices Index + owner occupiers’ housing costs (CPIH); and
• Retail Prices Index (RPI).

These measures have widespread applications in the economy but are also used by many pension schemes to calculate annual inflationary increases to benefits.

At BTPS, members of Section A and B typically have their pension increases calculated with reference to CPI, whilst those in Section C typically have their pension increases calculated with reference to RPI.

Due to differences in the way RPI and CPI/CPIH are calculated, RPI tends to be, on average, about 1% higher each year than both CPI and CPIH.

At the moment, the Government is consulting on a proposal to reform RPI to align it with CPIH, with the change happening sometime between 2025 and 2030.

It’s important to emphasise that nothing is changing at the moment but at BTPS, we are aware that for members of Section C this change may result in their benefits increasing more slowly after RPI is aligned with CPIH, resulting over time in a lower overall benefit than they would otherwise have received.

This change would also impact the value of some of the assets that BTPS owns, but that will not affect the pensions and benefits for our members as BT would make up the shortfall.

We are actively engaging with the Government to ensure it is aware of the impact these proposals would have on our members, and those of other schemes whose benefits are RPI-linked, and we have recommended mitigating measures that could be put in place by the Government.

Once the consultation has concluded and we have more detail on the Government’s plans, we will provide you with an update on the Scheme website. There’s nothing you need to do now.