NS&I index linked certificates

[Bouleversee]

I've just received the annual statements covering two of my index-linked certificates, showing what has been added for the past year. One is still on the RPI rate and the other was renewed after RPI had been dropped and is subject to CPI. There is a huge difference in what has been added to a similar value in each case. The percentage change in CPI is 0.64% and in RPI is 1.19% so £136.33 was added to £21,130.98 and £250.07 added to £20,856.12 for the index-linked return. plus tiny amounts of interest. I have to admit I don't understand how they arrive at the final figure c/f to the next year.

I also don't understand how CPI is so low and why there is so much difference between that and RPI. I don't think I shall roll over any more at that rate.

.

[dealtn]

I've just received the annual statements covering two of my index-linked certificates, showing what has been added for the past year. One is still on the RPI rate and the other was renewed after RPI had been dropped and is subject to CPI. There is a huge difference in what has been added to a similar value in each case. The percentage change in CPI is 0.64% and in RPI is 1.19% so £136.33 was added to £21,130.98 and £250.07 added to £20,856.12 for the index-linked return. plus tiny amounts of interest. I have to admit I don't understand how they arrive at the final figure c/f to the next year.

I also don't understand how CPI is so low and why there is so much difference between that and RPI. I don't think I shall roll over any more at that rate.

.

Are you genuinely asking for a difference in the two or is that just an observation? It is complicated but explainable.

[Stonge]

Among other things, AIUI, willing to be corrected

RPI is arithmetic
and CPI is geometric hence almost always fiddled lower by default

eg items a and b start price 1p

after a year a is 0.8p and b is 1.25p

rpi ((0.8 + 1.25) / 2)*100 - 100 = (1.025)*100 - 100 = 102.5 - 100 = 2.5%

cpi (0.8 * 1.25) * 100 -100 = 100 - 100 = 0%

[Bouleversee]

Dealtn:

I wasn't asking but would be interested to read your explanation.

Edit: Just trying to get my head round another post which was made while I was typing.

[Bouleversee]

Stonge -

I need some lunch before I tackle that.

[mc2fool]

Among other things, AIUI, willing to be corrected

RPI is arithmetic
and CPI is geometric hence almost always fiddled lower by default

eg items a and b start price 1p

after a year a is 0.8p and b is 1.25p

rpi ((0.8 + 1.25) / 2)*100 - 100 = (1.025)*100 - 100 = 102.5 - 100 = 2.5%

cpi (0.8 * 1.25) * 100 -100 = 100 - 100 = 0%

So buying one of a and one of b at the start would cost you 1p + 1p = 2p

and doing so again after a year would cost you 0.8p + 1.25p = 2.05p

and, despite the "basket" now costing you 2.5% more than previously, CPI says there's been 0% inflation ?!?

[dealtn]

Among other things, AIUI, willing to be corrected

RPI is arithmetic
and CPI is geometric hence almost always fiddled lower by default

eg items a and b start price 1p

after a year a is 0.8p and b is 1.25p

rpi ((0.8 + 1.25) / 2)*100 - 100 = (1.025)*100 - 100 = 102.5 - 100 = 2.5%

cpi (0.8 * 1.25) * 100 -100 = 100 - 100 = 0%

So buying one of a and one of b at the start would cost you 1p + 1p = 2p

and doing so again after a year would cost you 0.8p + 1.25p = 2.05p

and, despite the "basket" now costing you 2.5% more than previously, CPI says there's been 0% inflation ?!?

Essentially yes.

(And this really isn't the best Board for this, but is at least practical to the Board and product under discussion).

The reason is that it is taking into account that generally people buy more of something when it is cheaper than when it is expensive. If that's too difficult an economic concept then this will be tricky to get across.

So across an economy there will have been a general shift of expenditure such that in the second year more people are now buying the 0.8p item that used to cost 1p, having switched from the product that now costs 1.2p that also used to cost 1p.

The "basket" used to consist of 2 items, an item a and an item b. Because of the relative price moves the basket consists of (poor example given most products are finite) a bit more than 1 item a, and a bit less than 1 item b.

[mc2fool]

The reason is that it is taking into account that generally people buy more of something when it is cheaper than when it is expensive. If that's too difficult an economic concept then this will be tricky to get across.

Sarcasm is unnecessary and unappreciated.

[Gan020]

Correct me if I'm wrong but isn't the biggest difference between CPI and RPI house prices which are excluded from CPI and since house prices "only ever rise by more than inflation" RPI has been higher than CPI for many years?

[dealtn]

The reason is that it is taking into account that generally people buy more of something when it is cheaper than when it is expensive. If that's too difficult an economic concept then this will be tricky to get across.

Sarcasm is unnecessary and unappreciated.

None of which was intended as sarcastic, either to you or anyone else who might be interested. I was consciously aware this wasn't the Economics Board.

You appeared to want to have a genuine explanation of why it might still be 0%, and wanted an explanation. If not, or you prefer such assistance to come from someone else or in a different form then that will be more likely going forward.

[dealtn]

Correct me if I'm wrong but isn't the biggest difference between CPI and RPI house prices which are excluded from CPI and since house prices "only ever rise by more than inflation" RPI has been higher than CPI for many years?

Not really. There is also CPIH which contains a housing costs and it is significantly different to RPI.

[Bouleversee]

I am not going to bother my head with those calculations. So far as figures are concerned, I meant the final figure added for the year didn't seem to tally with the CPI change plus the tiny amount of interest added. Otherwise, I am only interested in the concept. Leaving out houses, what is the essential difference between CPI and RPI? Why the need for change other than to fleece people? I feel sure that most things ordinary people buy have gone up more than 0.64%. Food and cleaning products have gone up far more than that, especially if you take into account the blatantly reduced size/quantity of many items. I say blatant because they often use the same package and just reduce the contents ant then charge as much as or more than before. I haven't bought any clothes or furnishings for some time but I am horrified by the prices of some items I see advertised in the press and wonder who on earth buys them. I am shocked by the price of a tin of paint, for instance. How people on basic wages cope is beyond me, though I don't know what all the multiple benefits one is entitled to then adds up to.

Are defined benefit pension schemes linked to RPI or CPI? I know it used to be the former.

[stevensfo]

I am not going to bother my head with those calculations. So far as figures are concerned, I meant the final figure added for the year didn't seem to tally with the CPI change plus the tiny amount of interest added. Otherwise, I am only interested in the concept. Leaving out houses, what is the essential difference between CPI and RPI? Why the need for change other than to fleece people? I feel sure that most things ordinary people buy have gone up more than 0.64%. Food and cleaning products have gone up far more than that, especially if you take into account the blatantly reduced size/quantity of many items. I say blatant because they often use the same package and just reduce the contents ant then charge as much as or more than before. I haven't bought any clothes or furnishings for some time but I am horrified by the prices of some items I see advertised in the press and wonder who on earth buys them. I am shocked by the price of a tin of paint, for instance. How people on basic wages cope is beyond me, though I don't know what all the multiple benefits one is entitled to then adds up to.

Are defined benefit pension schemes linked to RPI or CPI? I know it used to be the former.

This discussion has been going on for many, many decades, and I vaguely remember in the 1980s, some independent inflation figures calculated by various institutions, though can't remember which. When working in France, 89-98, people used to joke about this and how the government would choose to include things that had gone down in price, merely to keep the official rate as low as possible. Back in the UK, we've had the RPI, CPI CPIH, but one has the impression that after so many years, rather than keeping things simple, the calculations are made even more difficult to understand. Hmm, wonder why? In theory, it's not a difficult task, but, you know what politicians are like. The last thing they want is something that's straightforward and makes sense.


Steve

[Bouleversee]

Why I was asking about final salary schemes is because that is what MPs still have. I wonder at what rate they are indexed. I shall see if I can find out.

[terminal7]

dealtn wrote:
The reason is that it is taking into account that generally people buy more of something when it is cheaper than when it is expensive. If that's too difficult an economic concept then this will be tricky to get across

- not always true - Giffen goods!

T7 (pedantically)

[Bouleversee]

Am pleased to see that from 2011 the indexation of MPs final salary pensions will be at CPI rate rather than RPI.

[swill453]

Why I was asking about final salary schemes is because that is what MPs still have. I wonder at what rate they are indexed. I shall see if I can find out.

My wife's (paltry) civil service pension is increasing by 0.5% next year.

Scott.

[Bouleversee]

I agree that that is terrible (not much better than my fixed rate annuity) but it is right that it is on the same basis as other defined benefit schemes and it's better than some interest rates on savings and probably better than the income from defined contribution pensions which might well have gone down this year; my dividend income certainly has. I don't understand why it's not at the same rate as NS&I CPI indexation, however. If MPs pensions are indexed acc. to CPI, surely civil servants' should be as well. My daughter is a civil servant and will be getting one in due course. I'll ask her. No point in complaining the way things are at present. Any secure income is a boon. It's just the pretence that bothers me.

[Gersemi]

0.5% is the CPI increase for September 2019 - September 2020, which forms the basis for public service pension increases from April 2021.

https://www.gov.uk/government/publicati ... ier-tables

[mike]

So far as figures are concerned, I meant the final figure added for the year didn't seem to tally with the CPI change plus the tiny amount of interest added.

That is because the renewal notice has added the increase 'one month short'. So for a 3 year term, the increase is 2 years 11 months as that is the latest figures available when the renewal was printed.

Using my renewal that I have received for a 3 year, it states just underneath the column of details (abridged as I can't copy it !)
*The estimated value is based on the RPI for Dec 2020 published in Jan 2021. The final value of your Certificate will be calculated using the RPI figure at the time it matures.

The next RPI will be published on Wednesday 17 February, and you will find it here when released about half way down the page.

The January 2018 RPI was 276.0 so when the Jan 2021 figure is released this will give you the 3 year increase (plus the 0.01%). If you need RPI for other dates, you will find the historic table here


Edit: typo