Thousands of savers who have retirement funds with telecoms giant BT are sweating on a ruling from the Court of Appeal which could change how workplace pensions are linked with the rising cost of living.
The pensioners won the first round of their fight at the High Court in January.
BT wants to switch the way cost of living increases are calculated for their company pensions from the Retail Price Index (RPI) to the Consumer Price Index (CPI).
Public sector pensions were moved from the RPI to CPI some years ago with the result that annual rises linked to inflation were lower and reduced the financial burden for the Treasury by billions of pounds.
Telco eyes cutting pension deficit
BT says a similar switch would also save the company billions, but the pensioners argue that their pension contract does not allow BT to change the rules and changing the measure would make them worse off, while BT says the High Court was wrong about what the rules say.
The BT pension scheme is £14 billion in the red.
The Court of Appeal has spent three days listening to technical legal arguments from both sides.
The case has far-reaching implications for millions of workers relying on their pension savings to fund their retirements.
CPI inflation is running at 2.2%, while RPI for the same period is 3.3%. Index linking a £1,000 a month payment increases a CPI-linked pension by £22, while the RPI rise is £33.
Technical arguments
The Office for National Statistics moved from measuring inflation based on the RPI to CPI in 2013, arguing that CPI is a more accurate inflation measure.
“Cost of living is a technical term that means the cost of maintaining a particular standard of living for any given individual,” said BT barrister Andrew Spink in court.
“What one can see from the idea of the cost of living is that this is a rule which is aimed at indexing pensioners and not aimed at maintaining earnings or remuneration or income for the population at large. In fact RPI and CPI are price indices, they measure moves in prices.”
A decision from the Court of Appeal is expected before the end of the year.
