The Court of Appeal has declared that trustees of the Barnardo's pension scheme cannot switch its indexed linked payments from the Retail Price Index (RPI) to the Consumer Price Index (CPI).
The Court stated that trustees could not change the index used for revaluation and indexation purposes.
It was noted that the rules of the Barnardo's Pension scheme did not permit trustees to switch from RPI to CPI as the inflationary measure for increases to pensions in payment and revaluation of deferred members' pensions.
The court made its decision with a 2:1 majority, with the Chancellor dissenting to the ruling, taking a view that the definition of the RPI in the Barnardo's scheme documents maintains that the trustees could not change the index "unless and until the RPI is replaced".
Wedlake Bell partner Clive Weber noted: "The Court's ruling today will be a relief for members but disappointing for employers. The decision is food for thought for the current Parliamentary Select Committee enquiry into defined benefit schemes, and the balance to be struck between employers and members. The ruling also upholds previous judgments on member protection: a power embedded in scheme rules to switch index is outside the statutory protection for members' benefits. This makes any new legislation permitting index switches politically more palatable."
Pinsent Masons legal director and pensions expert Simon Tyler, commented: "This ruling comes as a blow to the employers of many pension schemes with inflation protection wording similar to that considered in this case. Had the judgment gone the other way, those employers could have seen a way forward in reducing scheme deficits.
"This case confirms that for many DB pension schemes, new legislation is required to allow schemes to reduce liabilities on removing some inflation protection for members. Since there is no overriding statutory power allowing schemes to switch to CPI, this option depends on the precise wording in each scheme's rules."
A Barnardo's spokesperson said: "We are taking time to consider the outcome and the options with our legal and financial advisers."
This article was first published in Pensions Age on 2 November 2016.
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