The High Court has rejected a claim by public sector unions that the government’s decision to switch from the retail prices index (RPI) to the consumer prices index (CPI) for future pension increases was unlawful.
The judicial hearing began on 25 October 2011 to challenge the switch, which was announced by Chancellor George Osborne in the June 2010 budget.
Six unions – the Fire Brigades’ Union, National Association of Schoolmasters Union of Women Teachers (NASUWT), Prison Officers Association, Public and Commercial Services (PCS) union, Unison and Unite – will challenge the High Court ruling, which comes two days after the 30 November strike that challenged changes to public sector pension schemes.
The unions are arguing that the switch from RPI to CPI is not permitted under social security legislation. However, two of the three judges backed the government, despite all three judges agreeing that the decision for the switch was motivated by deficit reduction.
Read also Public sector unions challenge government’s CPI switch
Read more articles on the switch from RPI to CPI
This ruling means that pension funds in the private sector are not left with further uncertainty around any move to CPI.
Pension funds already face a complex task in deciding what the rules around switching from RPI to CPI mean for them, and this case could have added more uncertainty.
Shifting to CPI can give a pension fund some much-needed flexibility, but there are implications for both current and future pensioners. Trustees and employers know that any switch must be handled carefully.
No doubt members of public sector pension schemes will be extremely disappointed with the High Court’s ruling today.
But it is not just those in the public sector that have been affected by the government’s change in policy. Many private sector pension schemes have also seen their pensions being revalued by reference to CPI.
Whether a private sector scheme is affected by the switch has been something of a lottery, depending on whether the rules expressly built in a reference to RPI or referred to the legislation that relies on the government to determine what method of measuring inflation is used.
Undoubtedly, members of both public and private sector pension schemes will be united in pinning their hopes on the outcome of the unions proposed challenge of the High Court ruling.