High Court rules pension scheme has no power to switch RPI increases for CPI
Fuat Sami, partner, comments on the Barnardo’s pension scheme ruling released today:
“Today’s court decision will continue to leave employers and trustees, who have been grappling with this issue, in an unsatisfactory place. Unless the Government moves to consult more widely on amending primary legislation (to relax the existing section 67 requirements which govern members’ rights), the ability of schemes to switch from RPI to CPI will continue to depend on how the scheme rules were originally drafted many years ago – it is essentially a lottery. “Even for schemes which have clear in-built discretions to switch to another index, more uncertainty lies ahead for both employers and trustees as to whether this is permissible under the legislation, particularly given that this ruling is likely to be appealed and heard in front of the Supreme Court.”
“Trustees’ ability to change the rate at which members’ benefits are increased always comes down to construction of the scheme rules, so each case turns on the wording of the scheme’s governing documentation. Here the Court of Appeal has upheld the High Court’s finding that the scheme’s deed does not afford the trustees the ability to select the index by which increases are measured. They may only move from RPI when that index is formally replaced. However, as an application for permission to appeal to the Supreme Court has been made, this may not be the end of the story.
“Following previous decisions, the Court also commented that section 67 of the Pensions Act 1995 (which protects members’ subsisting rights) would not prevent a change of index where the trustees have a choice to make. This is because, until that choice has been made, it is not possible to say that the member has a right to an increase calculated in any particular way.”