Investment consultants and the Pensions and Lifetime Savings Association welcomed clarity over the future use of the retail price index to calculate U.K pension benefits and liabilities, but warned that the change will still be detrimental to participants.

Chancellor of the Exchequer Rishi Sunak announced Wednesday that the RPI calculation of inflation will be reformed to bring it into line with another measure of inflation — the consumer price index — starting in 2030 at the earliest.

The change was proposed earlier this year in a consultation by HM Treasury and the U.K. Statistics Authority. Plans to reform the RPI and align the index with the CPI came about because of flaws the U.K. Statistics Authority said exist in the RPI.

These flaws include that the RPI consistently was higher than the CPI as an inflation measure over the years. Due to the difference in calculations, using RPI inflated the value of benefits when it was used, for example, in inflation-linked portfolios.

However, despite the clarity over the timeline for introducing the change, market participants are still concerned over the impact of the change on pension funds. Consultants estimate that index-linked gilt investors could see losses of about £100 billion ($131.9 billion) based on past differences between the two indexes.

The U.K. Pensions and Lifetime Savings Association estimates the impact could be about £60 billion. Industry sources also said a move to RPI could increase the risk of insolvency for employers seeking to plug any deficits, because RPI-linked assets in pension fund portfolios are expected to grow at a lower rate than previously anticipated.

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