UK Pensions - Another switch from RPI to CPI is frustrated by the Courts
What did the scheme rules say?
What did the High Court decide?
In relation to whether RPI had “become inappropriate”, the High Court decided that:
- BT does not have the power to determine whether RPI has “become inappropriate” – instead, it is a question of objective fact and, in the absence of agreement between the employer and the trustee, is to be determined by the Court;
- in order for RPI to have “become inappropriate”, RPI must have become inappropriate (and not just less appropriate than any alternative index) for the purposes of calculating pension increases payable to scheme members; and
- the following matters and events, whether by themselves or in combination, were not such as to have caused RPI to have “become inappropriate” within the meaning of the relevant rule:
- - the impact on the formula effect (which causes RPI to be consistently higher than CPI) of a change to the collection and use of clothing prices in 2010;
- - the decision by the United Kingdom Statistics Authority in January 2013 to "freeze" the formula used in calculating RPI (although "routine" changes continue to be made to the calculation); and
- - the de-designation of RPI as a national statistic in March 2013.
- the scope of the wording is significantly narrower than the “becomes inappropriate” wording considered above – the rule is not engaged at all unless there has been an amendment to RPI (i.e. a direct change to the way RPI is calculated). Further, it is not any amendment that is required, but an amendment which invalidates RPI as a continuous basis for the purposes of calculating increases; and
- the matters and events listed above, whether by themselves or in combination, are not sufficient to permit the employer to form the view that RPI has been “so amended as to invalidate it as a continuous basis for calculating pension increases”.
What has the Court of Appeal decided?
- the High Court’s construction of the scheme rules was correct; and
- the High Court was entitled to conclude that the clothing change, the freeze and the de-designation did not mean that RPI had “become inappropriate” or that RPI was invalidated as a continuous basis for the purposes of calculating increases.