How a small change in calculating inflation will have big consequences for your pension

The way of calculating inflation relating to defined-benefit pension schemes is being changed from RPI to CPIH. Here's what it could mean for you.

Supermarket basket full of stuff
The basket of goods that makes up the gauge of price movements is changing
(Image credit: © Matt Cardy/Getty Images)

When it comes to pensions, changes to the small print can have big ramifications. So it is with the announcement last week from the chancellor that the government is to stop using the retail price index (RPI) measure of annual inflation from 2030. Instead, Rishi Sunak said, the default inflation yardstick will be the consumer prices index plus housing costs (CPIH).

There are good reasons to make this change. Statisticians have long complained that the RPI does a poor job of measuring the way prices are really changing, frequently overstating inflation. But the move will have a profound effect on pensions – particularly on defined-benefit (DB) schemes.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.