Financial Adviser Hastings

Prices index changes could affect gilt returns

Investors with index-linked gilts could be set for lower returns if the government pushes ahead with proposals to bring the retail prices index (RPI) into line with the consumer prices index (CPI).

The returns on British index-linked gilts are based on RPI, which has, in general, been between 0.5 and one percent above the CPI level. This measure is also used to calculate the yearly rises for some private pensions.

However, the Consumer Prices Advisory Committee of the Office for National Statistics (ONS) has drawn up three proposals which would reduce the gap between RPI and CPI or eliminate it altogether.

A consultation on these proposals will be released on 8th October, with individuals having until 30th November to comment. ONS will then publish its recommendations next January, with any change being introduced with the annual RPI update in March.

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