TPO upholds RPI/CPI complaint against Thales UK

The Pensions Ombudsman (TPO) has upheld a complaint against Thales UK Pension Scheme over concerns relating to the index used to calculate annual increases on scheme benefits.

The scheme announced on 29 September 2016 that it intended to increase scheme benefits annually based on the consumer prices index (CPI), rather than the retail prices index (RPI), which was historically used.

TPO have now ordered Thales UK to increase Mr R’s pension in line with RPI, capped at 5 per cent.

The scheme has also been ordered to pay any arrears that have accrued as a result of the freeze to Mr R’s pension increases, in addition to simple interest for these arrears.

The deputy ombudsman previously heard a similar complaint (PO-17674) against Thales UK in 2017 which was not upheld.

Within its most recent determination, TPO emphasised that whilst it are not bound by previous decisions, the difference in outcome was down to the specifics of the complaint.

TPO, Anthony Arter, highlighted that in the previous case, the investigation didn’t focus on whether the correct index had been applied, but whether the trustee had been through a “satisfactory process” in deciding to apply CPI.

Under the latest complaint, Mr R stipulated that pension benefit increases should be protected under rule 1.11(b) of the Thales Optronics Pension Scheme (TOPS) to which Mr R belonged.

However, the trustees argued that the shift from RPI to CPI by the Secretary of State in 2011 had rendered the reference to RPI in the 2000 rules obsolete, also citing legal advice received in 2010, which described the 2000 rules as “ambiguous”.

In 2015/16, Thales UK’s actuarial and Legal advisers informed Thales UK that the correct interpretation of the rule would be that pension increases were linked to the changes in legislation.

The trustees for the scheme also subsequently sought legal counsel at this time, which agreed that a court would give prominence to the statutory reference, and advised that the scheme be administered on the basis of an automatic switch to CPI in 2010/11.

As a result, the trustees confirmed that the changes would be applied retrospectively, and whilst it agreed to “write-off” the potential over payments, it also confirmed that there would be no further increases until those members’ benefits matched the level they would have been if the CPI changes had been applied in 2010.

However, in its determination, TPO emphasised that section 67 of the Pensions Act 1995, and the restriction the scheme’s amendment power under rule 4.17(b) of the 2000 rules, prevented the trustees from amending rule 1.11(b) retrospectively.

Arter, also cited a number of other cases that had effected the determination, including; Barnado’s v Buckinghamshire and others (2018), Mettoy Pension Trustees Ltd v Evans, and Royal Mail Group Ltd v Evans and other (2013).

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