Barnardo's pension scheme CPI appeal rejected

Out-Law News | 02 Nov 2016 | 3:42 pm | 1 min. read

The trustees of the Barnardo’s pension scheme cannot switch from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) for revaluation and indexation purposes, the Court of Appeal has confirmed.

Under the Barnardo's pension scheme rules, indexation and revaluation must be based on the "General Index of Retail Prices or any replacement adopted by the trustees without prejudicing approval". 

Two out of the three judges ruled that there needed to be a replacement index, established independently of the scheme, before the trustees could switch from RPI. However commercially sensible it might be to use CPI, that index did not constitute a 'replacement' of RPI, they said.

CPI is the main measure of UK inflation and is used to uprate public sector pensions and state benefits.

Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com said: "This ruling comes as a blow to the employers of many pension schemes with inflation protection wording similar to that considered in this case. Had the judgment gone the other way, those employers could have seen a way forward in reducing scheme deficits."

"This case confirms that for many defined benefit pension schemes, new legislation is required to allow schemes to reduce liabilities on removing some inflation protection for members. RPI is widely regarded as a flawed measure and inappropriate for the inflation protection of pensions.  In 2013 the Office for National Statistics stopped classifying RPI as an official national statistic.  However, since there is no overriding statutory power allowing schemes to switch to CPI, this option depends on the precise wording in each scheme’s rules," Tyler said.