Linking pensions to CPI 'breaches human rights'
Plans to link private pension increases to the Consumer Prices Index (CPI) are a “nightmare” which could breach human rights, a group of experts have said.
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By Heidi Blake
Published: 9:53AM BST 10 Aug 2010
29 Comments
Millions of people with private sector retirement schemes could see their pensions reduced by as much as 25pc if the change goes ahead
The Government announced last month that private occupational pension payments would be linked to CPI, a typically lower measure of inflation which excludes housing prices, instead of the Retail Prices Index (RPI), which has been used in Britain since 1947.
The move is designed to wipe £100 billion of the estimated £239bn black hole in final salary pensions schemes, but the experts said many Britons have been promised the higher RPI-linked annual increases and retrospective changes could breach their human rights.
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Millions of people with private sector retirement schemes could see their pensions reduced by as much as 25 per cent if the change goes ahead.
But members of Mallowstreet, an online forum for pensions experts, have written to the government claiming the change has been imposed overnight and that a full consultation period is required.
Philip Read, the chairman of British Coal pension trustees, said the plans were a “potential nightmare”.
But the Government has insisted that public and private pensions must be consistent. Ministers had already announced that CPI would be used to update state benefits in future, instead of RPI.
The experts on the online forum also include Andrew Swan, from M&G Investments, and Karen Wake from ACE insurance.
Gordon Sharp, an actuary at the professional services firm KPMG, warned last month that all employers would now have to revisit the small print in their pension schemes to establish if they are eligible to take advantage of the change.
For those schemes that expressly refer to pension payments being linked to RPI, they cannot by law change the rules because it would be a worsening of benefits, he said.
"It is going to be a big headache for human resources teams and every individual in the pension scheme; they have to look at the rules and work out the pensions wording."
Robin Simmons, partner at Sackers law firm, estimated that 50 per cent of schemes in the UK were linked specifically to RPI, meaning half the employers that offered final salary schemes could not benefit from the changes.
"Lots of private sector pension schemes refer expressly to RPI and they will not be able to take advantage of this – they're stuffed," he said after the change was announced.
The changes will come into force as early as next year.
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