The Supreme Court has ruled that Barnardo’s must use the Retail Prices Index (RPI) as its measure of inflation in regard to pensions payments.
The decision comes after trustees of the Barnardo’s pension scheme argued that they should be able to interpret a clause in their pension scheme trust deed in a way that would allow them to use the Consumer Prices Index (CPI) as their measure of inflation instead.
However, the Supreme Court upheld the decisions of the High Court and the Court of Appeal in ruling that the RPI must be the index used, unless the RPI had been discontinued as an officially published index and replaced, as specified in their trust deed.
Pinsent Masons pensions partner, Stephen Scholefield said: “Those who were hoping for a fundamental rubbishing of pensions schemes using RPI will be sadly disappointed. As ever, trustees and employers should think carefully about what their schemes rules actually say, even if this might not give the outcome they want.”
Barnardo’s, the children's charity and sponsoring employer, sees CPI as a more appropriate measure of inflation, as it believed it would enable a reduction of the scheme’s deficit.
However, representatives of the members of the scheme were concerned that the adoption of the CPI as the index would, over time, reduce the benefits which they receive from the scheme.
Quilter head of retirement policy, Jon Greer explained: “Allowing the trustees to adopt CPI for pension payment increases would reduce the funding shortfall by between £36m to £74m.
“However, in some respects it would have been robbing Peter to pay Paul as changing the inflation mechanism is a retrospective pay cut for scheme members since the principle behind DB pensions is that it is deferred pay.”
The ruling provides clarity to private pension schemes across the UK that there is no discretion for their trustees to use any other method of inflation if it is specified in their trust deed.
Stephenson Harwood partner, Philip Goodchild commented: "This judgment confirms that trustees and employers must be very cautious when considering a change of index and the powers of trustees, and rules governing schemes, should be thoroughly assessed before any changes made.”
Speaking on the ruling, Hogan Lovells counsel, Nicola Rondel said: "This is the end of the line for Barnardo's. Around £100m of pension scheme liabilities rest on a definition that was given very little thought when rules were drafted back in the day. The ONS appears to be adopting a cautious approach to reforming RPI and it seems unlikely that it will be replaced as the official index any time soon."