The government could be forced to fork out as much as £40bn in compensation if a legal challenge launched today over the Treasury’s move to recalculate retail prices succeeds, analysts have warned.
Pension trustees at BT, Ford and Marks & Spencer have launched legal proceedings claiming that their members are set to see their payouts slashed by a move to rejig the retail price index, set to come in from 2030.
In November 2020, the Chancellor moved to change the definition of the retail price index and replace it with the consumer prices index including housing costs.
Analysts have predicted today that the Treasury could be forced to foot a £40bn compensation bill to holders of index-linked government bonds tied to the RPI if the challenge succeeds, the Times reported today.
The challenge argues that investors in the inflation-protected bonds, which have an interest rate determined by the RPI, bought the bonds on the expectation the terms would not change.
Ian Mills, a partner at actuary firm Barnett Waddingham, told the Times that success in the challenge would come at huge cost to the taxpayer.
“If compensation is paid then this would significantly improve pension scheme funding levels, but at a colossal cost to the taxpayer — the compensation figure could be greater than the UK’s annual defence budget,” he said.
Mills warned that the city was unlikely to succeed, however.
Analysts at Insight Investment meanwhile said the change to the RPI could cost pensioners £100bn, with thousands of pension scheme members set to receive lower pensions as a result of the move.