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Pension increases: Changing from RPI to CPI

The long-running Barnardo's case has finally ended in a judgment from the Supreme Court, with the charity's bid to switch from RPI to CPl as the basis for pension increases being rejected for the second and final time.

In common with many other DB schemes, the Barnardo's scheme increases pensions in payment by reference to RPI, up to a maximum of 5% p.a. In 2015, the charity sought to change the index to CPI, and the trustees applied to court for guidance as to their powers in this respect.  The court said they could not change without making a formal amendment to the indexation rule, which would be highly problematic.  Barnardo's appealed to the Court of Appeal, and on rejection of that appeal, to the Supreme Court.

The Supreme Court's decision turned entirely on the wording of the increase provision, and specifically on the meaning of the term "RPI" given in the scheme rules:

"RPI means the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval."

It was argued by Barnardo's that the words "any replacement adopted by the Trustees" meant that they could adopt another index even though RPI had not been officially replaced, as long as it was acceptable for Revenue purposes.  However, the Court held that there were two stages involved, first an official replacement of RPI by CPI, and second its adoption by the trustees.  While statutory increases must now be by reference to CPI, RPI has not been replaced.  It is still an officially published index. 

While this looks like one in the eye for employers, it's all in the wording, which can and does vary from scheme to scheme.  The message for employers or trustees who may not yet have grasped this nettle is simply to get your lawyer to check your scheme rules.  A switch from RPI to CPI can reduce the scheme's liabilities by a material amount but it depends on the precise wording of the scheme's rules.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions

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