Judges have thrown out a plea from charity Barnardo’s to change the way cost of living increases are calculated for staff pensions.
Barnardo’s was counting on judges at the Supreme Court in London to interpret the wording of a clause to allow pension trustees to replace the inflation index.
Increases to the charity’s pensions were based on the Retail Price Index (RPI), which the trustees wanted to replace with the Consumer Price Index (CPI).
The CPI is the government’s official measure of rises in the cost of living which replaced the RPI some years ago.
CPI cost of living increases are typically lower than the RPI as the CPI does not include housing costs.
RPI v CPI
The current CPI is 2.2%, but the RPI is 3.3%, which means under the terms of the pension scheme, payments are indexed at the higher rate.
The case revolved around the wording of a clause in the pension terms which said increases were adjusted by “the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval”.
Barnardo’s argued that as the RPI had been dropped as an official inflation measure by the government, the scheme trustees could do the same or choose a replacement index regardless of if the RPI was still published.
Upholding decisions at the High Court and the Court of Appeal, the Supreme Court decided the first interpretation of the scheme rules is correct and that RPI has to be replaced by the official body responsible for its publication before the trustees can adopt the replacement.
BT case appeal awaited
The case is likely to have ramifications for other pension schemes considering moves to drop RPI in favour of CPI.
Around 300,000 BT pensioners are awaiting the result of a similar case before the Court of Appeal. A decision is expected before the end of the year.
BT has a £14 billion pension black hole and one way of reducing the deficit is by lowering the rate inflation is applied to the amount.
Trade union Unison argues that changing from RPI to CPI would leave pensioners around £12,000 worse of in retirement and that companies would wipe between £80 and £90 billion owed to pension schemes.