Question to the HM Treasury:

To ask Her Majesty's Government why they are changing the index on NS&I Index-linked Savings Certificates bought between 2 June 1975 and 7 October 1996 from RPI to CPI; and what is the legal base that enables this change to be made.

Index-linked Savings Certificates (ILSCs) have not been on sale since 2011. Customers who purchased ILSCs between 2 June 1975 and 7 October 1996 (Issues 1-9), and who did not provide instructions at maturity to withdraw their funds, subsequently had their funds mature into ‘Index-linked Extension Terms’ (ILETs). ILETs act as a holding account for customers until they request the return of their investment.

The number of ILET holders and total value of ILETs since 2012 and forecasts for the next 10 years are provided in the first attachment.. NS&I undertook a data migration in 2012 therefore data is provided from that point forward.

Interest earned on ILETs is normally held separately to the investment and paid out when customers claim their funds. However, in 2012 NS&I capitalised interest into accounts. Therefore, the figures in the table do not include interest earned since 2012 (totalling c£30 million).

ILETs currently earn interest equal to RPI. Starting 1 May 2019, from the day and month the original investment was made (the ‘anniversary date’), each ILET will earn interest based on CPI. On this day, outstanding interest will be capitalised into the account, with interest earned after this date continuing to be held separately. NS&I does not hold an anniversary date for the oldest investments (Issues 1 and 2). For these issues, an anniversary date of 11 November has been set. This corresponds with the date in 2012 that NS&I last capitalised interest into these accounts.

NS&I has the right to change the terms and conditions of ILETs at any time after the expiration of the original term. Customers are being notified at least 60 days in advance of the change taking effect, via correspondence and public notices published in the Daily Express, Daily Mail, Daily Telegraph and The Times on 8 February 2019.

The forecast reduction in interest payments caused by the change in the index from RPI to CPI of Index-linked Extension Terms is provided in the second attachment.

As NS&I announced at Budget 2018, from 1 May 2019 holders of ILSCs who chose to renew their investments into a new term would also receive interest based on CPI rather than RPI. The changes to ILETs and ILSCs recognise the reduced use of RPI by successive governments and is in line with NS&I’s need to balance the interests of its savers, the cost to the taxpayer, and the stability of the broader financial services sector.

The Government issues wholesale gilts through the Debt Management Office. In the past 10 years, the only index-linked products issued by the Debt Management Office have been Index Linked Gilts, which are linked to RPI. The Government recognises the flaws in the way RPI is measured and have made progress in moving away from using it. However, given the extensive use of RPI across the public and private sectors, further moves away from the measure are complex and potentially costly. As set out at Budget, the government’s objective is that it will reduce the use of RPI when and where practicable. At the present time there are no current plans to stop issuing RPI-linked gilts.