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Changes to CPI

CHANGES TO CPI FOR PENSION INCREASES

On the 01st April, 2011 Royal Liver pension payslips have been issued showing CPI (Consumer Price Index) increases of 3.1% and below is information as to why this change has been made. The decrease of your normal pension appears to have been an error and was corrected on 01st May.On the 22nd June 2010 the Government proposed a change from RPI (Retail Price Index) to CPI as the basis for increasing benefits and Public Service Pensions.On the 08th July, 2010 it was announced that CPI was to be used for statutory minimum revaluations and indexation of occupational pension schemes.From 01st January 2011 Occupational Pension Schemes will use CPI to determine the minimum amounts for both revaluing and indexing benefits as usual. The House of Commons approved an order to move from RPI to CPI index linking for public sector, state additional and occupational pensions. At the same time The Guaranteed Minimum Pensions Increase Order was passed by 247 votes to 19. It provides for contracted out defined benefit schemes to increase by 3% their members guaranteed minimum pensions that accrued between 1988 and 1997.Schemes such as the Liver`s are required to index pension rights accrued from 1997 onwards. The amount is decided by the Secretary of State as a percentage. The Statutory minimum increase is capped at 5% for pension accrued between 1997 and 2005. Capped at 2.5% thereafter. This is known as LPI (Limited Price Index)Contracted out schemes, again such as the Liver`s must provide a Guaranteed Minimum Pension (GMP) as a condition of contracting out and therefore are required to index GMP rights accrued from 1988 to 1997. There is a cap of 3% on the increase. For pre 1988 GMP, the whole of the increase is paid by the state as an addition to the state pension.Occupational pension schemes are also required to revalue deferred pensions. Usually between leaving service and reaching pension age, Increase is again determined by Secretary of State and is capped at 5% for service before 2009 and afterwards at 2.5%Schemes that specify RPI for pension increases will continue to use this method except where CPI is higher.The Government is aware that statements have been made that schemes have to change to CPI but it believes that some schemes will continue to use RPI and they would not wish to discourage them from doing so, however it should be noted that CPI was higher than RPI in September 2009.In regards to the State Pension, for 2011 the Basic State Pension will increase by the measure of RPI in September 2010 (4.6%) but the serps element will increase by CPI (3.1%) In future the Government have announced that it will increase by the better of CPI or Average Weekly Earnings index.CPI tends to be at a lower figure than RPI as it does not include mortgage payments.On the 15th April Royal Liver Pensions Trustees Limited issued a letter to all superannuitants explaining about the changes. One important part of the letter states:-The rate of pension increase applicable to ordinary members is the rate required by legislation. The Scheme`s rules specifically refer to the relevant legislation and, if there is any change in the legislation, the Trustee is required to implement that change. This is the case whether the change is to the benefit or disadvantage of any members.Also on the 15th April, 2011 Prudential won a landmark court ruling that could change the way pension increases are made. A judge ruled that Prudential could change the basis on which discretionary increases to pensions were granted to members of its final salary scheme. In 2005 it decided to use RPI as the basis for increases but at a cap of 2.5%. and this was challenged by the Trustees but the court ruled in favour of Prudential.HISTORY OF GUARANTEED MINIMUM PENSIONS INCREASE ORDERSYear Inflation figure Actual Increase1997 2.1% RPI 2.1%1998 3.6% RPI 3% (capped)1999 3.2% RPI 3% (capped)2000 1.1% RPI 1.1%2001 3.3% RPI 3% (capped)2002 1.7% RPI 1.7%2003 1.7% RPI 1.7%2004 2.8% RPI 2.8%2005 3.1% RPI 3% (capped)2006 2.7% RPI 2.7%2007 3.6% RPI 3% (capped)2008 3.9% 3% (capped)2009 5.0% RPI 3% (capped)2010 -1.4% RPI 0%2011 3.1% CPI 4.6% RPI 3% (capped)2nd December 2011The High Court has rejected a claim by several Public Sector Unions and the Civil Service Pensioners` Alliance that the Governments decision to change indexation for future pension increases from RPI to CPI was unlawful.The move had been applied to some private sector schemes which do not have RPI linked pension increases written into the rules ( such as those of Royal Liver )The unions had argued that the change was not permitted under social security legislation and reneges on assurances given by successive Governments that RPI would apply.Two of the Three judges backed the Government, and made the following statement- `the use of RPI has in the past been merely current practice. Looked at objectively it could not properly be asserted therefore that any promise of its continued use had to be assumed` meaning the unions challenge was lost. It is possible that an appeal will be made however many law firms have stated "that decisions are set by statute, so if the Secretary of State wants to change the statute that is what he does. It might not be a popular move but that is how the system works."Court costs are likely to be around £150,000 and the unions may be liable.The appeal has been heard and rejected. It is likely that the unions will be liable for the costs involved plus the original court costs.



Royal Liver Superannuitants Association