RPI to CPI Early Day Motion 1032

Ripoff_2

hugheskevi wrote: »

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.

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.

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.

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.

The ONS should have been consulted before this annoucement was made and I believe that the Minister did not consult the ONS because if he had then he would have known that the CPAC report recommended that CPI should have housing costs included and the method of measuring the mean looked at before being used for indexing. He would have also known that the Treasury and the Bank of England also had concerns about using CPI as it was. This was further highlighted by the RSS in a letter to the chairman of the ONS who basiclly agreed there were issues to be resolved.

The Minister I believe decided to use CPI without referring to any professionals or his own statistcal team i.e. ONS. Thus this change is in fact an irrational choice hence why the CSPA have 4 freedom of information requests in to the DWP for the disclosure of the rational steps taken in this regard.

Hence why I keep saying the Government has a case to answer here and why it is imperative for everyone to raise this issue with their MP's and Steve Webb the pensions Minister.

Regarding the BT pension scheme there is a booklet on the BTPS web site that does in fact specifically say that pension increases will be in line with RPI. Here I believe BT people have been misled and most will have believed that RPI was the indexing that would be used they would never have thought or been told that it could be changed like this.

JohnB47

Thanks for the replies hugheskevi and Ripoff. Some comments on your posts.

"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 ."

But the change in prices is to one that specifies "a statutory minimum". Are you saying that the Government is able to change the uprating minimum and is then somehow bound to apply it as the absolute value (rather than treat it as a minimum)? That doesn't make sense to me. Also you seem to be saying that the Government is obliged to do what the Secretary of State for Work and Pensions determines. And who does he work for exactly?

"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."

Sorry, I don't understand. Are you confusing the state pension scheme with private ones? For state pensions, I thought the proposal was for uprating at CPI or 2.5% or the general rise in earnings, whatever is greatest. For private pensions, the Government is proposing that they must uprate by at least CPI as opposed to RPI, full stop. Or have I lost the plot?

Thanks for the link, I'll have a look at that.

Ripoff - totally agree with you. And re your last paragraph, BT will say - ahh booklets, yes... well....hmmm...we seem to have made a printing mistake with them....er...... for a number of years actually .... Nothing legally binding of course, sorry.

Cheers.

hugheskevi

But the change in prices is to one that specifies "a statutory minimum". Are you saying that the Government is able to change the uprating minimum and is then somehow bound to apply it as the absolute value (rather than treat it as a minimum)?

There are a few changes which have taken place, which are getting mixed up. The changes are:

• Additional Pension uprating changed from RPI to CPI. This also determines the uprating applied to public sector pensions
• The basis for statutory minimum indexation and revaluation, which was RPI capped at 2.5% will change to be CPI capped at 2.5%
• Some schemes, such as BT, have rules in their scheme which cause indexation to be the same as used in public sector schemes

The Government has to increase State Additional Pension (and hence public sector pensions) by the change in the general level of prices, without a cap. Due to the link in the scheme rules, this change is automatically applied to BT.

The Government could do what it liked to the statutory minimum - even abolish it entirely - and it would have no impact on public sector schemes and hence also no impact on BT.

For private pensions, the Government is proposing that they must uprate by at least CPI as opposed to RPI, full stop. Or have I lost the plot?

The Government is proposing that defined benefit private pensions will have to increase by a minimum of CPI or 2.5%, whichever is the greater. Public sector pensions choose to apply uncapped CPI, which being more than the statutory minimum is acceptable.

Ripoff_2

JohnB47 wrote: »

Thanks for the replies hugheskevi and Ripoff. Some comments on your posts.

"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 ."

But the change in prices is to one that specifies "a statutory minimum". Are you saying that the Government is able to change the uprating minimum and is then somehow bound to apply it as the absolute value (rather than treat it as a minimum)? That doesn't make sense to me. Also you seem to be saying that the Government is obliged to do what the Secretary of State for Work and Pensions determines. And who does he work for exactly?

"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."

Sorry, I don't understand. Are you confusing the state pension scheme with private ones? For state pensions, I thought the proposal was for uprating at CPI or 2.5% or the general rise in earnings, whatever is greatest. For private pensions, the Government is proposing that they must uprate by at least CPI as opposed to RPI, full stop. Or have I lost the plot?

Thanks for the link, I'll have a look at that.

Ripoff - totally agree with you. And re your last paragraph, BT will say - ahh booklets, yes... well....hmmm...we seem to have made a printing mistake with them....er...... for a number of years actually .... Nothing legally binding of course, sorry.

Cheers.

For everyone following all this I refer you to the following website for further information and perhaps clarification why people are so angry. telegraph.co.uk/finance/personalfinance/pensions/8161409/Pensioners-unite-to-fight-switch-from-RPI-to-CPI.html

As you will see from the article, there is an act of betrayal going on here by the Conservatives and Liberal Democrats. Assurances were sort from prospective ministers before the election and then they have now reneged on those assurances now they are in Government. People voted on the basis of those assurances, it's simple really it's called TRUST; I think pensioners and members have a right to be angry, very very angry. If we lose all trust in our society then what else do we have left. This betrayal goes beyond just the pension issus it goes to the core of what is going wrong with this Government. They are losing the trust of the people with so many acts of betrayal.

For anyone from BT that wants to know what was in the 1986 booklet about why RPI was cast in the minds of all BT employees than this is why.

BT PENSION SCHEME

SECTION A/B

Explanatory booklet for

Members who have BT Pension Scheme membership before 1 April 1986

Pension Increases

Pensions in payment are reviewed and increased in April each year.
Pensions in payment in excess of the Guaranteed Minimum Pension (GMP) are at present increased by
the Scheme at a rate equal to the increase in the cost of living over the 12 months to September of the

previous year - as measured by the Retail Prices Index (RPI).

Though it has the words "at present increased by" it does not have the words "But this can change to anything the Government dictates" Clearly this is a misleading booklet and would lead anyone to believe that their pension was be indexed by RPI. No other booklet in the 38 years RPI has been used was ever issued to my knowledge by BT specifically saying that it wouldn't be RPI. I would be interested for any views on this.

hugheskevi

I would be interested for any views on this.

Scheme literature is intended to explain to members how their scheme rules work. As such, a degree of latitude is acceptable, as the purpose isn't to be a legal document, rather, an informative product.

Therefore detailed caveats and cross references would not be expected within an information leaflet. In particular, did the leaflet contain somewhere a caveat stating that whatever is written within the leaflet does not override scheme rules?

Having said that, you obviously cannot mislead people within literature. If I was defending the accusation I had misled people, I would be saying that:

• The leaflet is for information only, not a detailed interpretation of scheme rules
• It is clear that there is scope for change, given the words "at present"
• The mention of RPI is simply to illustrate the index which is likely to be used - this is not unreasonable given this is the index which has been used in the past. This will help members anticipate their increase, as RPI is commonly discussed in media. It is however not a promise.
• There is a caveat in the leaflet saying that scheme rules take precedence (note that I am assuming this - it would be likely, but is not certain)
• Scheme rules clearly do not include a promise of RPI. Member's should therefore not have assumed such a link.

There are good responses to all of these points of course.

However, the main thing which would concern me is the precedent of public sector pensions moving to CPI. I wouldn't expect a court to rule that such an action is not permissable for BT when millions of other people have had the same change made to their pensions. Similar leaflets have been put out for public sector, so I think you would need to demonstrate why the case of BT is different to that of the public sector to stand a reasonable chance of a legal victory.

Ripoff_2

hugheskevi wrote: »

Scheme literature is intended to explain to members how their scheme rules work. As such, a degree of latitude is acceptable, as the purpose isn't to be a legal document, rather, an informative product.

Therefore detailed caveats and cross references would not be expected within an information leaflet. In particular, did the leaflet contain somewhere a caveat stating that whatever is written within the leaflet does not override scheme rules?


Having said that, you obviously cannot mislead people within literature. If I was defending the accusation I had misled people, I would be saying that:

• The leaflet is for information only, not a detailed interpretation of scheme rules
• It is clear that there is scope for change, given the words "at present"
• The mention of RPI is simply to illustrate the index which is likely to be used - this is not unreasonable given this is the index which has been used in the past. This will help members anticipate their increase, as RPI is commonly discussed in media. It is however not a promise.
• There is a caveat in the leaflet saying that scheme rules take precedence (note that I am assuming this - it would be likely, but is not certain)
• Scheme rules clearly do not include a promise of RPI. Member's should therefore not have assumed such a link.

There are good responses to all of these points of course.

However, the main thing which would concern me is the precedent of public sector pensions moving to CPI. I wouldn't expect a court to rule that such an action is not permissable for BT when millions of other people have had the same change made to their pensions. Similar leaflets have been put out for public sector, so I think you would need to demonstrate why the case of BT is different to that of the public sector to stand a reasonable chance of a legal victory.

Thanks for this and of course the Booklet does mention trust deeds of the scheme, but employees are not legal eagles and though BT can and will use the arguments you raise I still think that the booklet is missleading to the lay person and I suppose that would have to be challenged in court.

BT I would argue is different to the public sector because of just that it is not a public sector company and has been private since 1984. The main argument of the government in moving to CPI is to save money and hence the public sector purse will be topped up by public sector pensioners.

In BT's case this change does not save any money for the treasury, it just puts money back into the employers hands, as BT has already said with much glee. I might add that it saves them 2.9billon. Thus why should BT pensioners be hit in this way when the argument for doing so does not directly benefit the treasury, all it does is take money from the employee and Ex employee and rewards the employer. This change has nothing at all to do with deficit reduction where BT pensioners are concerned, and BT has already altered it's pension scheme to a career average from a final salary and increased the percentage that members pay in.

That was put to the vote to secure the pension scheme and BT agreed that there would be no further changes required. Hence this is a double blow for BT pensioners, they are going to be paying more in, get less benefits out and now have a reduced indexing as well. This just can not be right.

hugheskevi

The main argument of the government in moving to CPI is to save money and hence the public sector purse will be topped up by public sector pensioners.

Although this may be true, from the legal standpoint, the key issue is whether CPI is a reasonable measure of the change in the general level of prices. Whether it increases or decreases cost is immaterial at this point. Unlike in Ireland, the change to pensions is not being made out of absolute economic necessity.

This just can not be right.

It is going to be extremely tricky to change. Whilst there is of course outrage as the change is detrimental to members, unfairness alone isn't sufficient to win anything. It is necessary to pin-down exactly which part of the process can be successfully challenged. To overturn the change will require demonstation that one or more of the following hold:

• The Secretary of State for Work and Pensions is irrational in deciding that CPI is to be used as a measure of the general change in prices (very unlikely to win this - CPI may or may not be the best measure of price change, but I doubt you could show that it is sufficiently bad as to make choosing it irrational).
• The BT Scheme Rules should have been amended when the Government announced the change, so that revaluation/indexation remained at RPI when the change to CPI was made. (not sure what law you could rely on to show that a change must be made so can't see any challenge here)
• Members had legitimate expectations to RPI uprating and their property rights have been removed without justification. (this seems the most likely route of challenge - largely based on scheme literature I would think)

That was put to the vote to secure the pension scheme and BT agreed that there would be no further changes required. Hence this is a double blow for BT pensioners, they are going to be paying more in, get less benefits out and now have a reduced indexing as well. This just can not be right.

Public sector workers are in the similar position. Unions and Government agreed in 2005-6 (roughly) changes to the scheme. As a result, new members got Career Average. Now it is all being re-opened.

Although BT obviously isn't public sector, I'm struggling to see a legal reason why they should be subject to different treatment and think therefore that precedents from public sector pensions will be crucial.

JohnB47

Hi again.

hugheskevi, I'm still confused by your views. You said in an earlier post:

"The Government is proposing that defined benefit private pensions will have to increase by a minimum of CPI or 2.5%, whichever is the greater. Public sector pensions choose to apply uncapped CPI, which being more than the statutory minimum is acceptable. "

There is no mention of "CPI or 2.5%" in the Governments Press release. It simply says that for public pensions and if it can arrange it, private pensions, the uprating will move from RPI to CPI. Where have you obtained that info?

Similarly BT and the Trustees have both confirmed that they will apply CPI - without any other condition.

The press release is dwp088-10-120710

Thanks.

hugheskevi

The press release says:

In broad terms, a revaluation order is made each year which sets out the minimum rate at which occupational pension schemes should generally revalue deferred pension rights and pay increases on pensions in payment.

In the revaluation order, which is published around November/December each year, it sets out the statutory minimum uprating. This revaluation order isn't new, it happens every year and is well established.

The revaluation order has previously been using RPI capped at 2.5%. As an example, see this webpage (first thing I googled). The press release says statutory revaluation/indexation will change RPI to CPI in the order (but the caps will remain at 2.5%).

It is very common for caps to apply to private sector defined benefit indexation - both 2.5% and 5% are common (5% was the old statutory minimum, which was replaced by 2.5% a while back).

Similarly BT and the Trustees have both confirmed that they will apply CPI - without any other condition.

There is no hint that BT or the public sector will apply caps to indexation. The indexation offered by BT and the public sector (uncapped indexation) exceeds the statutory minimum, so the caps are of no relevance.

Hence why all this talk of changes to statutory minimum indexation is absolutely irrelevant to the case of BT and the move from RPI to CPI

To recap, there are three things going on here:

1) Additional Pension uprating changed from RPI to CPI. This also determines the uprating applied to public sector pensions
2) The basis for statutory minimum indexation and revaluation, which was RPI capped at 2.5% will change to be CPI capped at 2.5%
3) Some schemes, such as BT, have rules in their scheme which cause indexation to be the same as used in public sector schemes

Number 2 is irrelevant to BT, but references to it have made people think this is relevant. It is number 1 and 3 which matter for BT.

Ripoff_2

hugheskevi wrote: »

Although this may be true, from the legal standpoint, the key issue is whether CPI is a reasonable measure of the change in the general level of prices. Whether it increases or decreases cost is immaterial at this point. Unlike in Ireland, the change to pensions is not being made out of absolute economic necessity.




It is going to be extremely tricky to change. Whilst there is of course outrage as the change is detrimental to members, unfairness alone isn't sufficient to win anything. It is necessary to pin-down exactly which part of the process can be successfully challenged. To overturn the change will require demonstation that one or more of the following hold:

• The Secretary of State for Work and Pensions is irrational in deciding that CPI is to be used as a measure of the general change in prices (very unlikely to win this - CPI may or may not be the best measure of price change, but I doubt you could show that it is sufficiently bad as to make choosing it irrational).
• The BT Scheme Rules should have been amended when the Government announced the change, so that revaluation/indexation remained at RPI when the change to CPI was made. (not sure what law you could rely on to show that a change must be made so can't see any challenge here)
• Members had legitimate expectations to RPI uprating and their property rights have been removed without justification. (this seems the most likely route of challenge - largely based on scheme literature I would think)

Public sector workers are in the similar position. Unions and Government agreed in 2005-6 (roughly) changes to the scheme. As a result, new members got Career Average. Now it is all being re-opened.

Although BT obviously isn't public sector, I'm struggling to see a legal reason why they should be subject to different treatment and think therefore that precedents from public sector pensions will be crucial.

Maybe, and I am no lawyer but perhaps a lawyer on this forum could help me here but your final satement "Members had legitimate expectations to RPI uprating and their property rights have been removed without justification." is coverede by

Protocol 1, Article 1 of the European Convention of Human Rights (incorporated into the Human Rights Act 1998) says:-

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

The courts have ruled that pensions are "possessions" and, therefore, enjoy the protection of the Act. This applies both to pensions already in payment and to pension entitlements already accrued but not yet in payment.

BT pensions switch to CPI does not as I have said meet the public interest criteria as the only ones to benefit are the employer, thus perhaps this act can be used against the change. Again I would welcome yours or others comments on this. Preferably a lawyer who could give us a yes or no answer. Thanks