RPI to CPI Early Day Motion 1032

JohnB47

Ripoff wrote: »

Some of you may be interested in the following website nfop.org.uk, especially BT pensioners and for non BT there is also cspa.co.uk both provide very good information on the subject.

Excellent, thanks. I thought that there was a body that represented occupational pensioners and now I know.

Ripoff_2

shaunrc wrote: »

Just as an add on to this debate I am an economist who has also been an IFA. I joined the original debate on here about the change in pension indexation from the RPI measure to CPI. I write on inflation often as it is one of my specialist areas. For example I wrote recently about the downgrade to our producer price inflation numbers.

Anyway I wrote on Friday the 19th of November with some thoughts on the "Silver RPI" constructed by Age UK. The reason for this is that it takes retirees experience of inflation even further away from the Government's CPI measure. I do not agree entirely with the research but it is a further criticism of the justification behind the move to change pensions indexation.For those interested my thoughts can be read on http://notayesmanseconomics.wordpress.com

Thank you for this contribution, any useful information is always welcome. Steve Webb the pension Minister wrote to me and said, I quote "....and that CPI is a more appropriate measure of changes in the cost of living of pensioners than RPI" I think that you may have something to say on that the RSS (Royal Statistical Society) certainly does not agree.

JohnB47

I also had a letter from Steve Webb (actually a letter sent to my MP in response to him passing on my concerns about BT adopting CPI). It probably has exactly the same wording as yours, Ripoff.

Steve Webb also repeated the statement made in the Governments initial announcement document:

"The changes will affect the statutory minimum requirement for revaluation and indexation; occupational pension schemes will still have the freedom to pay more than the statutory minimum."

And yet BT has eagerly jumped at the opportunity to adopt it outright and I now have a letter from the Pension Scheme Trustees effectively saying it's all the Governments fault, we can't do anything about it, we've taken legal advice and it means we must change to using CPI - tough but there you go. Not one word in the document about the change to CPI being a "statutory minimum requirement", with the possibility that BT might use it just as that and continue to pay more (i.e. RPI, except for the years when CPI is greater).

I've read the statement on the NFOP website (link provided in an earlier post on this thread) and it says (as regards the BT scheme) that the governing rules and Laws do not even mention RPI and goes on to say:

"In effect if the Secretary of State decides to choose the CPI then this is what will be applied to the BTPS and probably to the Royal Mail Pension Plan. In other words legislation is a determinant of the inflation linkage rules."

But surely that misses the point that the proposed CPI (like RPI before it) is "a statutory minimum requirement" and not an absolute. It's a bit like an employer saying to a new recruit "the government has set a minimum wage and so that is what we must pay you". Nonsense.

You may say I'm being naive but it really bugs me when a company has for years managed a pension scheme based on uprates on a certain basis and then, when Government gives them the green light, they rush at the chance to effectively pay their future and past employees less in pension for the rest of their lives. And the Trustees just roll over. It seem immoral somehow.

hugheskevi

And yet BT has eagerly jumped at the opportunity to adopt it outright and I now have a letter from the Pension Scheme Trustees effectively saying it's all the Governments fault, we can't do anything about it, we've taken legal advice and it means we must change to using CPI - tough but there you go. Not one word in the document about the change to CPI being a "statutory minimum requirement", with the possibility that BT might use it just as that and continue to pay more (i.e. RPI, except for the years when CPI is greater).

In fairness to the BT trustees, it is not the change to statutory minimum revaluation that is the cause of the BT scheme moving to CPI.

The change to the statutory minimum is incidental to the BT scheme - it is the change to the Civil Service scheme which is driving all the changes as this is what the scheme rules are linked to. This may sound pedantic, but it is a very important distinction to draw.

From the trustee's position, they have to implement the scheme rules. To preserve RPI would in fact be making a change rather than the status quo as far as scheme rules are concerned. To achieve such a change would require the trustees negotiating with the employer to make a change which improves the scheme. Given the huge pension deficit, the employer is unlikely to agree to such a change.

And the Trustees just roll over

I am not sure the Trustees really have any choice in the matter. The scheme rules are clear about what must happen, the Trustees say they have sought legal advice and been informed that there is no basis for a challenge (from a legal perspective).

Given the advice received, it is unlikely to be in member's best interests to pursue what is likely to be unsuccessful legal action, as it would simply deplete scheme funds to fund the challenge without expectation of benefits from the legal action for members. Trustees would find it difficult to agree to such actions.

This might all seem to be splitting hairs, but it is crucial to understand that the references to statutory minimums are a red-herring in the case of BT - it is the link in scheme rules which is the key point.

Ripoff_2

hugheskevi wrote: »

In fairness to the BT trustees, it is not the change to statutory minimum revaluation that is the cause of the BT scheme moving to CPI.

The change to the statutory minimum is incidental to the BT scheme - it is the change to the Civil Service scheme which is driving all the changes as this is what the scheme rules are linked to. This may sound pedantic, but it is a very important distinction to draw.

From the trustee's position, they have to implement the scheme rules. To preserve RPI would in fact be making a change rather than the status quo as far as scheme rules are concerned. To achieve such a change would require the trustees negotiating with the employer to make a change which improves the scheme. Given the huge pension deficit, the employer is unlikely to agree to such a change.



I am not sure the Trustees really have any choice in the matter. The scheme rules are clear about what must happen, the Trustees say they have sought legal advice and been informed that there is no basis for a challenge (from a legal perspective).

Given the advice received, it is unlikely to be in member's best interests to pursue what is likely to be unsuccessful legal action, as it would simply deplete scheme funds to fund the challenge without expectation of benefits from the legal action for members. Trustees would find it difficult to agree to such actions.

This might all seem to be splitting hairs, but it is crucial to understand that the references to statutory minimums are a red-herring in the case of BT - it is the link in scheme rules which is the key point.

I believe that you are quite right in your statement here and hence why this whole issue is being directed at the Government, they are the ones that are changing to CPI from RPI, after RPI has been good enough for the past 38 years to measure UK domestic inflation.

The really big question here is "Can the Government just change the recognised inflation rate for UK domestic inflation without consulting with anyone, not even the ONS" and get away with it? Are the public going to allow them to get away with this blatant abuse of power?

The Government knows that the CPI rate does not and never did give the UK domestic inflation rate. CPI was never designed to, it was designed to measure European inflation on a like for like country basis. This is why it doesn't include housing costs as different countries have different housing systems and hence why no other European country uses CPI to measure their domestic inflation rate, they have the equivalent to our RPI.

If this Governmnet is allowed to get away with this change then at any time, this Government could at a whim change to a different measure to fit any political agenda it liked, now that is scary and it just can't be allowed in a democracy. This also means that any future Government could do exactly the same, even more scary.

This is why this change has to be stopped, it can not be right for any Government to change the UK Domestic inflation rate at will. They must be forced to have a discussion on the matter and a conscensus of opinion that to make any change is not only valid but also in the best interest of all the people, they should not just be able to get away with changing it like this. It can not in any democracy be right to change something like the inflation measure that affects so many people in so many different ways without first going through a detailed process of governance. The question is "did this Government follow the governance process before they anounced this change" Who did they consult, what process did they follow and did they do a full impact analysis, did they get a conscensus of opinion form the professionals before the change and can they prove they did.

I don't believe any Government should ever be allowed to change the recognised UK Domestic inflation rate to an other without some form of due process otherwise what is the point of a measure that can be changed at will when it suits?

lvader

Altough it affects me negatvely I can help think that this is a sensible change. We are already mortaging our kids futures, anything we can do that might help the situation should be done.

JohnB47

Some very good points, hugheskevi and Ripoff.

But just to labour the point a bit - I see this as a two stage thing.

Take public service (civil service) pensions. The Government sets the uprating minimum - it was RPI and is now proposed to be CPI. Fine. Stage two, it decides that it will pay no more than this minimum, so that's the decision that has effect and it can take this decision because it is the ultimate employer of Civil Servants.

Now take BT, or Royal Mail. Stage 1, the Government sets CPI as the new statutory minimum. Fine. Step two, BT or Royal mail decide whether to apply it or to apply RPI, or some other formula, as long as the uprating figure is not lower than CPI. It's their decision, just as it is the Governments decision, as a second stage, whether or not to apply just the minimum or something else.

Otherwise why is it quoted as "a statutory minimum" for the purpose of pension uprating?

Can anyone demonstrate to me (by quoting text) where in the relevant rules or Laws, concerning BT pensions, it says that the statutory minimum will apply in future, rather than a figure that goes no lower than that minimum. I really would like to see the actual text. I've had a look at them and I can't see anything like this.

I know I know. People more qualified than me have said that this is the way it must be, but it just seems plain wrong.

One other thing - why on earth is BTs pension scheme linked to Civil Servants scheme rules? I understand the history but surely this history is no longer relevant and hasn't been for many years.

Thanks all.

Ripoff_2

lvader wrote: »

Altough it affects me negatvely I can help think that this is a sensible change. We are already mortaging our kids futures, anything we can do that might help the situation should be done.

For BT, Royal mail, Britsh gas etc etc the privatised ex public sector workers/pensioners, who have worked for private companies since 1984 onwards. This change does not put money back in the public purse, it puts it back to the employer. BT is already boasting that it is going to save from it's pensioners past and present to the tune of £2.9billion by this change. This does not help the taxpayer. It could push those pensioners into possible poverty and could cause some of them to sign on the dole if they are not collecting their state pension yet in order to make ends meet, hence it could actually end up costing the taxpayer more in job seekers allowance and benefits.

Don't forget less income means less spending power, therefore more businesses fail, more people on the dole, more expense for the tax payer in dole payments and less taxes for the Government to pay off the debt. So please do not be fooled by this deficit reduction mantra portrayed by this Government to justify the unjustifiable and remember this change is forever, NOT just until the deficit is cleared, how can that be fair by any measure?

There are better/other ways than this, increasing income tax raises money fairly for one and everyone pays based on their ability to pay, this measure just takes money off the least able to pay, it is not based on their ability to pay either.

I am sorry but this change can not and should not be acceptable to anyone, deficit or no deficit.

Ripoff_2

JohnB47 wrote: »

Some very good points, hugheskevi and Ripoff.

But just to labour the point a bit - I see this as a two stage thing.

Take public service (civil service) pensions. The Government sets the uprating minimum - it was RPI and is now proposed to be CPI. Fine. Stage two, it decides that it will pay no more than this minimum, so that's the decision that has effect and it can take this decision because it is the ultimate employer of Civil Servants.

Now take BT, or Royal Mail. Stage 1, the Government sets CPI as the new statutory minimum. Fine. Step two, BT or Royal mail decide whether to apply it or to apply RPI, or some other formula, as long as the uprating figure is not lower than CPI. It's their decision, just as it is the Governments decision, as a second stage, whether or not to apply just the minimum or something else.

Otherwise why is it quoted as "a statutory minimum" for the purpose of pension uprating?

Can anyone demonstrate to me (by quoting text) where in the relevant rules or Laws, concerning BT pensions, it says that the statutory minimum will apply in future, rather than a figure that goes no lower than that minimum. I really would like to see the actual text. I've had a look at them and I can't see anything like this.

I know I know. People more qualified than me have said that this is the way it must be, but it just seems plain wrong.

One other thing - why on earth is BTs pension scheme linked to Civil Servants scheme rules? I understand the history but surely this history is no longer relevant and hasn't been for many years.

Thanks all.

I agree with you JohnB47, you are right, all this is wrong especially for the ex public sector pensions such as BT, see my last post as it backs you up. The Government is also trying to legislate for specific schemes that refer to RPI to allow them to use this so called statutory minimum as well, now this is yet another twist to this that beggers belief. The statutory minimum was of course RPI so BT pensions used that and this is where the problem lies, hence why the argument is in the way the Government are in effect moving the goal posts, they need to be brought to book on this.

hugheskevi

Take public service (civil service) pensions. The Government sets the uprating minimum - it was RPI and is now proposed to be CPI. Fine. Stage two, it decides that it will pay no more than this minimum, so that's the decision that has effect and it can take this decision because it is the ultimate employer of Civil Servants.

For Civil Service pensions the Government is obliged to uprate by the general change in prices, as determined by the Secretary of State for Work and Pensions.

There is no stage 1 of setting a minium or stage 2 of choosing what it will uprate by. The Government has no discretion beyond determining what the general level of prices is (which must not be an irrational choice) and that is their only decision.

Otherwise why is it quoted as "a statutory minimum" for the purpose of pension uprating?

The statutory minimum is not CPI, it will be CPI capped at 2.5 in future, it has previously been RPI capped at 2.5% (and other things in the further past). Both have a collar of 0%, ie pensions in payment will not be reduced.

The statutory minimum refers to the minimum which every defined benefit scheme must uprate by - it doesn't even have to be linked to inflation as long as it satisfies the statutory minimum, so a flat escalation of 2.5% regardless of inflation would be sufficient to meet the rule.

Can anyone demonstrate to me (by quoting text) where in the relevant rules or Laws, concerning BT pensions, it says that the statutory minimum will apply in future, rather than a figure that goes no lower than that minimum. I really would like to see the actual text. I've had a look at them and I can't see anything like this.

Scheme rules (page 22) for section A/B of BT scheme say:

Any pension in payment will be increased from time to time in accordance with:

• the Pensions (Increase) Act 1971, and;
• Sections 59 and 59A of the Social Security Pensions Act 1975

as if the pension was payable under the PCSPS. "Pension" has the same meaning in this paragraph as in the Pensions (Increase) Act 1971.

(Note that PCSPS means Principle Civil Service Pension Scheme - my addition)

The rules simply say BT pensions will do what Civil Service pensions do. You might want to read through the thread on BT here for a full discussion.

One other thing - why on earth is BTs pension scheme linked to Civil Servants scheme rules? I understand the history but surely this history is no longer relevant and hasn't been for many years.

I think it was all done back around 1984? Twenty six years is not a long time for pensions. Once accrued, rights are protected (well, mostly!) so if you change the rules every 5 or 10 years members end up with multiple tranches of pensions and it all becomes very confusing. Even if rules had been changed in, say 1995, accruals made before that would still be linked to the Civil Service scheme so it isn't as though when there is a change the entire pension changes.