Pension schemes cannot switch retail prices index (RPI) increases for consumer prices index (CPI), the Court of Appeal has held.
Under the 1988 rules of the Barnardo’s pension scheme, pensioners are entitled to annual increases. Barnardo’s v Buckinghamshire [2016] EWCA Civ 1064 concerned whether the trustees of the scheme had the power to replace the RPI measurement of these increases with the CPI or some other index. This would significantly reduce the deficit in the fund but also significantly reduce pensioners’ future annual increases.
The court held that the trustees did not have the power to do this. It also commented that s 67 of the Pensions Act 1995, which protects members’ rights, would not prevent a change of index if the trustees did have the power to make the change.
Fuat Sami, partner at Sackers, said the decision would “continue to leave employers and trustees, who have been grappling with this issue, in an unsatisfactory place.”
Sami explained the court had held that the scheme’s deed does not afford the trustees the ability to select the index by which increases are measured.
“Unless the government moves to consult more widely on amending primary legislation…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,” he said.
“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.”
