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Barnett Waddingham comments on Employer disappointment over inflation consultation

Commenting on the news that private pension schemes will not be able to move to CPI if their rules state RPI, Paul Jayson, partner, Barnett Waddingham says:

“I’m sure that the provisions of the Consultation Document dealing with ‘The impact of using CPI as the measure of price increases on private sector occupational pension schemes’ will come as a bitter disappointment to many private sector scheme sponsors.

“Many sponsors have already sought to quantify the savings that they might have made on their scheme’s liabilities if they were allowed to mirror what will happen in the public sector, both in terms of ongoing funding and their corporate accounts.  The problem is that many private sector schemes have RPI “hard wired” into their Rules as the measure by which pensions will be indexed.  This compares with the public sector where increases are invariably linked to an Order made by the Secretary of State.

“It was hoped that overriding legislation might have been passed to allow schemes to overcome this “drafting lottery” and be able to link pensions to CPI (generally considered to be below RPI) irrespective of the provisions of their particular Rules.  In the event, private sector schemes will have to hope that legislation is passed to avoid a double whammy to stop them having to provide the better of RPI and CPI, where CPI forms the minimum rate by which pensions will need to increase by law.

“I can see how overriding legislation could have been hard to implement, particularly as a change in accrued benefits would have undoubtedly needed Trustee approval.  The current position will, I am sure, feel like a crushing disappointment to those scheme sponsors who had already banked on some much needed good news regarding their pension scheme.”