The High Court has ruled that Atos IT Services UK Ltd (“Atos”), the Principal Employer for the Atos UK 2011 Pension Scheme (“the Scheme”), could not change the index by reference to which pensions in payment are increased (indexation) from RPI to CPI.
The case concerned the construction of the rules of the Scheme, which was governed by an Interim Deed dated 30 June 2011 (“the Interim Deed”). The key provision concerned (“the Definition”) was not technically part of the Interim Deed, but contained in a document attached to it. Nonetheless, it was accepted that the Definition applied for the purpose of calculating annual pension increases for certain benefits payable under the rules.
The Definition read as follows:
“Retail Prices Index means the general index of retail prices (all items) published by the Office for National Statistics, or, where that index is not published, any substituted index published by that Office (or its successor) as the Principal Employer and the Trustees may agree. Where the retail prices index ceases to exist, the Principal Employer and the Trustees may agree any substituted index published by that Office (or its successor).”
Mr Justice Nugee, considering the wording of the rules, principles of construction, and the status of RPI, held that “this provision, unlike some of the others that have come before the courts, does not […] pose any real difficulties of construction at all”. In his view “the only possible answer” was that the Definition clearly referred to RPI.
As RPI continues to be published by the UK Statistics Authority (“the UKSA”), because the UKSA (operating via the ONS) is under a statutory obligation to do so, the Scheme remains bound to use it for indexation. This “is not because RPI is still the UKSA’s or ONS’s best or lead or preferred or main or most comprehensive measure of inflation – the evidence leaves it entirely clear that it is not – but simply because the words in the Definition mean the same today as what they meant in 2011.” As a general principle, in English law a written instrument “has a single meaning and that meaning is fixed when the instrument is executed” and the purpose of a definition “is to identify what the draftsperson meant by the defined term”. In this case, RPI.
The Definition contained its own ‘trigger’ provision under which some other index could be substituted (“where that index is not published”), but Mr Justice Nugee found that it had not been triggered. The “very first principle of construction” is that ordinary English words should generally be given their ordinary English meaning. This is particularly “the case in pension schemes, where loyalty to the text is the first principle.” Mr Justice Nugee held that the second sentence of the definition (“ceases to exist”) was redundant because “as soon as RPI ceases to exist it will cease to be published, and the trigger condition will be met.”
As RPI continues to be published, no substitution had taken place and it followed that “the index referred to is still RPI”.
As Mr Justice Nugee states, this is “another example of what is by now a fair number of cases” raising the question of which index should be used to increase pensions in payment. “All these cases turn on the construction of the particular terms used in the scheme in question and, save insofar as they lay down general principles, no direct assistance can be obtained from them”.
A consultation is expected to be released alongside the Budget (11 March 2020) on whether to “address the shortcomings of RPI” between 2025 and 2030.