After consulting on options for changing Retail Prices Index, the Office for National Statistics has chosen 'none of the above' and proposed a new index to be published in parallel.
RPI will continue to be used for long-term indexation and index-linked bonds despite ONS concerns over its formulation.This means the decision should have little effect on scheme liabilities or assets.
National statistician Jil Matheson said there was "significant value to users in maintaining the continuity of the existing RPI's long time series without major change".
But she added that a new RPI-based index, to be known as RPIJ, was required because the current formulation does not meet international standards.
RPIJ, will be based on the same basket of goods as RPI but will use a geometric formulation known as Jevons, in place of the arithmetic or Carli index formula used in RPI. It will be published from March this year.
The consultation was prompted by concerns over the formula effect - the difference between RPI and the Consumer Prices Index arising from the formulae used in the different indices - which had become more pronounced after changes to the way clothing data was collected.
It proposed four alternatives: leaving the index unchanged; switch to a geometric mean for clothing; switch to a geometric mean wherever Carli is used; align the formulae fully with that used to calculate CPI (PP Online 18 September 2012).
Saga director general Ros Altmann said the ONS had listened to respondents, with two thirds of organisations and 87% of individual respondents backing the no change option.
"To have radically changed the traditional inflation measure, on which many people's incomes depend, could have jeopardised the inflation protection inherent in many people's income arrangements," she said.
The ONS has already announced it will begin publishing a CPI-based index that will include owner occupier housing costs, which is the other significant reason for the difference between RPI and CPI, in March (PP Online 2 November 2012).
Today the ONS also recommended changes to the way data on private housing rents are collected which will need to be approved by the Bank of England and, if the move has a material effect on gilt-holders, the Chancellor.
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