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CPI pension link will cut £100bn from FTSE 100 liabilities

CPI pension link will cut £100bn from FTSE 100 liabilities

FTSE 100 business will save nearly £100 billion by linking their pension schemes to the consumer price index (CPI), according to defined benefits consultancy Pension Capital Strategies (PCS).

Last week the government announced that the inflation link for defined benefit (DB) pensions in payment would switch from the retail price index (RPI) to CPI.

PCS said a change of 0.1% in the inflation assumption alters the pension liability by 2%. Government forecasts suggest the CPI measure will be 1% - 1.5% less per year than RPI. Unlike the retail price index (RPI), CPI does not include house prices and mortgage payments.

Taking pension liabilities as at May 2010, a move from 3.6% RPI to 2.5% CPI would cut £96 billion from the liabilities of FTSE 100 companies, said PCS.

Economist Michael Johnson welcomed the government's move.

‘It is the first sensible initiative in many years that will help resuscitate occupational schemes because it acts to counter the main force that has been driving employer-sponsored schemes into retreat: the cost to the employer,’ he said

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