Nabarro

RPI to CPI: court allows switch for both past and future service

By Kate Richards

Over recent years, many employers with defined-benefit (DB) schemes have considered changing the index used for revaluing deferred benefits and increasing pensions in payment. In 2011, the statutory index for revaluation and indexation was changed from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). It is generally considered that CPI is likely to show lower increases than RPI and so schemes switching from RPI to CPI will be able to record a decrease in liabilities.

The index that should be applied will depend on the detail of the scheme rules. Some rules feed into the statutory provisions and, in which case, will already be using CPI. Others contain rules, or definitions, that give the employer or trustees the power to select an alternative index (sometimes only in specific circumstances). Many schemes will have an entrenched index that can only be changed using the scheme’s power of amendment.

A recent case involving two Arcadia pension schemes shows the court allowing a switch from RPI to CPI, for both past and future service. Although the case turns on the detailed wording of the scheme provisions, it may be helpful to other schemes wishing to make the change…

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