Pensioners' relief as RPI fiddle ruled out

National statistician Jil Matheson said there should instead be a new measure brought in to stand along with the two which are already used to work out how fast prices change.

Pensioners expressed concerns following proposals to make big changes in the calculation of the Retail Prices Index - the measure of inflation linked to retirement income and a series of other investments and services.

Ms Matheson called for a new index to be created from March - RPIJ - which involves some calculation changes but would be closer aligned to the other inflation benchmark, the Consumer Prices Index.

She said that while RPI calculation, which unlike CPI includes mortgage costs, didn't meet international standards it should be maintained due to its "significant value" to index-linked bond markets.

The index is linked to a wide variety of services and investments, from water bills and rail fares to pensions and even national debt.

For pensioners many annuities are linked to RPI and even a small percentage change could knock thousands of pounds off a typical 20-year retirement income.

Many private pensioners also have their annual increases linked to RPI, while returns for investors with index-linked bonds and savings certificates are likewise based on the index.

The change may be deemed necessary as any change prompting a fall in RPI would save the Treasury billions of pounds a year in interest on government bonds.

Saga director-general and pensions expert Ros Altmann said the decision not to alter RPI was "excellent news."

She added: "To have radically changed the traditional inflation measure could have jeopardised the inflation protection inherent in many people's income arrangements."

Meanwhile, the Bank of England has decided to keep its key base rate at its record low of 0.5 per cent for the 46th month running and it will not be printing any more money to pump into the economy - so-called quantitative easing.