Part of the MOD response:
The Government has responded to the petition you signed – “Reinstate RPI index linking to Military pensions from the current CPI index link”.
Government responded:
On 22 June 2010, the Chancellor announced that for 2011, public service pensions would increase in line with the CPI rather than the RPI.
On 22 June 2010, the Chancellor announced that for 2011, with the exception of the state pension and pension credit, benefits, tax credits and public service pensions would increase in line with the Consumer Price Index (CPI) rather than the Retail Price Index (RPI).
Public service pensions, including Armed Forces pensions, are increased under the provisions of the Pensions (Increase) Act 1971 and Section 59 of the Social Security Pensions Act 1975. The latter provides for public service pensions to be uprated at the same time and by the same percentage as the increase in the additional pension provided under the State Earnings Related Pension Scheme (SERPS), which has been based on the increase in the CPI since April 2011. Prior to this date the RPI was used rather than the CPI. The underlying purpose of this legislation is to maintain the purchasing power of the additional elements of state retirement pensions and public service pensions.
The rationale for the change is as follows:
• CPI is the headline measure of inflation used by the Bank of England;
• CPI takes better account of how behaviour changes in response to price changes;
• CPI also more accurately represents the inflation experience of pensioners and benefit recipients – for example, RPI excludes pensioners who receive a significant proportion of their income from the State (up to 20% of retired households); and
• CPI is less volatile – for example, RPI was negative in September 2009 whereas CPI continued to rise.
The pension is accrued (or activated) on the basis of current prices. The uprating of pensions does not apply retrospectively.
In response to a legal challenge against this decision the High Court and the Court of Appeal both ruled in the Government's favour, finding that CPI is appropriate for benefits and pensions uprating.
RPI has also historically experienced periods of negative year on year change, as in 2009 when the uprating of pensions in payment was also frozen.
Ministry of Defence
In other words, CPI is cheaper!