The Supreme Court has ruled that the employer in this case does not have the right to vary the inflation protection of employee pensions from the higher Retail Prices Index (RPI) to the lower value Consumer Prices Index (CPI).
The Court accepted there is a recognised need for private pension schemes to provide some form of indexation of pensions to protect the value of members’ pensions against price inflation. The area of dispute in this case centred on the wording in the pension agreement:
"'Retail Prices Index' means the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval.'"
Barnardo’s argued that this clause empowers the trustees to adopt another index which they consider a more suitable measure of price inflation (such as the CPI), regardless of whether or not the RPI continues to be published. Representatives of members of the scheme, who are concerned that the adoption of the CPI as the index would over time reduce benefits which they receive from the scheme, argued that the clause does not empower the trustees to depart from the RPI for the purposes of the indexation if the RPI continues to be published, which, of course, it does. The trustees adopted a neutral stance.
So, could the Trustees or employers take the CPI as a replacement for the more expensive RPI? They could not, the UKSC has ruled.
The UKSC set out eight reasons for finding against the employer in this case, the first of which was that the draftsman chose to use the word “replacement”, which does not naturally suggest the selection of an alternative to an option which remains available. It was not a conclusive reason for finding for the employees but, taken together with the other seven reasons, the authority of the employer to vary the scheme was limited by the continued existence of the RPI and the absence of a replacement for it.
https://www.supremecourt.uk/cases/uksc-2016-0210.html Â
As ever, you may watch online the UKSC video of the summary judgement being delivered:
https://www.youtube.com/watch?v=RnRR8xR60V0
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