Public sector unions have lost their High Court battle over alterations to how pensions are calculated.
George Osborne announced in his emergency Budget in June 2010 that, with effect from April 2011, pensions would be uprated using the consumer prices index (CPI) instead of the retail prices index (RPI). Public sector unions challenged the decision, saying that it was unlawful.
However, a High Court judgment today stated: “The use of RPI has in the past been merely current practice. Looked at objectively it could not properly be asserted, therefore, that any promise of its continued use had to be assumed.”
The three judges rejected, however, the Government’s argument that the change was “an appropriate measure” and ruled that the decision was made to save the state money.
The Office for Budget Responsibility this week forecast that the future difference between RPI and CPI was likely to be between 1.3 and 1.5 percentage points, which has led unions to suggest that CPI-uprated pensions could be worth as much as 20% less over 18 years of retirement.
TUC general secretary Brendan Barber said: “This is a disappointing judgment for pensioners and scheme members whether they draw a private, public or state second pension.
“But we take great heart that the Court accepted the argument that the Government did this to cut the deficit rather than carry out a proper consideration of the best way of measuring the cost of living for pensioners, even if only one judge said that it was unlawful.”
James Walsh, senior policy adviser at the National Association of Pension Funds, welcomed the news: “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.”
He added that one in four private sector final-salary pensions is able to move from RPI to CPI but that many schemes have RPI “hardwired” into their rules.
Christine Blower, general secretary of the National Union of Teachers (NUT), said: “All three judges agreed that a substantial motivation for the switch to CPI was deficit reduction. It is disappointing that only one judge felt able to say that that was wrong. It’s also disappointing that the arguments advanced by the other unions involved were treated so dismissively. The NUT has obtained permission to appeal to the Court of Appeal.”
