Company and pension executives are eagerly waiting to see how the U.K. government will implement proposed changes to the inflation measure used in calculating pension benefits, as the effects might touch an array of areas, including investments.
Because U.K. defined benefit pension liabilities increase with inflation as measured by the Retail Price Index, a change to the Consumer Price Index could reduce pension deficits by as much as 10%, experts say.
That's because the rate of CPI is expected to be as much as 70 basis points below the RPI rate in the future, thereby lowering future pension benefit increases.
That could lead U.K. pension trustees to back off riskier assets like stocks in favor of liability-matching ones like bonds, said Lynda Whitney, associate and pension fund actuary at Hewitt Associates in Epsom, England.
For now, however, trustees are waiting to see the fine print; the government should reveal its plans for implementation by November, Ms. Whitney said.
“Until we really know for sure how the government will implement it, it's too early to say what anybody will do about it,” she said.
