UK: Which Inflationary Index? The Arcadia Case Sheds Some Light…

Last Updated: 3 November 2014
Article by Justin McGilloway

In the recent High Court case of Arcadia Group Ltd v Arcadia Pension Trust Ltd , the sponsoring employer of two of the Arcadia Group's pension schemes asked the court to determine whether the Consumer Prices Index (CPI) could be used in place of the Retail Prices Index (RPI) as the inflation measure for increasing deferred pensions and pensions in payment.

The rules of each scheme required the increase and revaluation to be based on RPI, defined as "the Government's Index of Retail Prices or any similar index satisfactory for the purposes of HMRC".

The issues to be addressed

Questions arose as to the meaning of the definition above. The High Court was asked to determine four main issues:

1)            Does the phrase "or any similar index" allow for an index other than RPI?

The Court held that on balance, the construction of the RPI definition confers the power to select an index other than RPI even where RPI still existed as an official index. This power is not just exercisable in the event that RPI is discontinued or replaced.

2)            Who can exercise the power to select the index – the sponsoring employer or the trustees?

The Court determined that the sponsoring employer and the trustees could select the index jointly. While the sponsoring employer is primarily responsible for the design of the benefits it provides under a pension scheme, it does not follow that it is also entitled to exercise all powers relating to the alteration of benefits. The power of alteration under the schemes is exercisable by Arcadia with the consent of the trustees – it would be odd, therefore, if the power of selection between indices was capable of being exercised by Arcadia alone.

3)            Would CPI be "satisfactory for the purpose of HMRC"?

HMRC no longer approves pension schemes but merely requires that schemes are registered with them. In addition CPI has received Government endorsement (as the measure for statutory revaluation and pension increases). The use of CPI is also unlikely to prejudice HMRC in any way. Based on these findings the Court concluded that there was no reason to suggest that CPI was anything other than satisfactory.

4)            Whether switching from RPI to CPI breaches the restrictions in section 67 of the Pensions Act 1995? (In broad terms section 67 provides that trustees or employers cannot make changes (including rule amendments) that could detrimentally affect the pension rights members have accrued in the past, unless certain conditions are met or the members agree to the changes.)

              The Court approved the decision in Danks v Qinetiq Holdings Ltd (2012) (?link to our April 2012 e-bulletin). In that case, the High Court held that moving from RPI to CPI  for past service did not breach section 67. The only accrued right members had was a right to have their pension increased by either RPI "or any other suitable cost of living index selected by the Trustees". It followed therefore that they had no accrued right to increases on the basis of RPI.

     Arcadia scheme members' subsisting rights are to be determined by reference to the definition of RPI – which includes an ability to switch to any similar index satisfactory for the purposes of HMRC. The switch to CPI would therefore be possible for past as well as future benefits without breaching section 67.

Wedlake Bell comment

The Government endorsed the use of CPI in place of RPI as the statutory standard for public sector pension increases over four years ago. In that time, CPI has filtered through into private sector defined benefit schemes as the statutory standard for both revaluation of deferred pensions and increases to pensions in payment. However, for schemes that do not incorporate these statutory standards, trustees, employers and lawyers alike have been tasked with interpreting rules to see whether the flexibility to switch actually exists. Some schemes have switched to CPI automatically whereas on others, the interpretation of the rules has led to a lot of head scratching as to whether discretion exists to choose between the two measures of inflation. The Arcadia case is an example of that head scratching finding its way to the Courts for guidance.

We are now clear on how certain definitions can be interpreted and schemes with wording similar to those found in Qinetiq and Arcadia cases can rest easy knowing that if push comes to shove, the employers and/or trustees can switch from RPI to CPI without falling foul of Section 67.

However, what we don't have is clarity on how trustees with a discretion to switch should go about exercising such discretion. For instance, what factors should trustees be taking into account in considering the exercise of such a discretion? Fiduciary duties to members, the reasonable expectations of members and of course the financial health of the scheme and the underlying employer covenant all have a part to play in these considerations. Further judicial guidance in this area is likely and we will keep you posted on developments.

In the meantime, legal advice should be sought on any decision to switch inflationary index and Wedlake Bell's Pensions & Employee Benefits Team would be pleased to assist in providing such advice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions