On the go: Children's charity Barnardo's may not change the inflation protection it provides to members of its defined benefit scheme, the Supreme Court has ruled.
Sponsors of the Barnardo Staff Pension Scheme had attempted to argue that the wording of a clause in its scheme rules allowed it to change indexation applied to members benefits from the retail price index to the consumer price index.
CPI is generally held to be a more accurate measure of inflation. The Office for National Statistics has emphasised its shortcomings and publishes only the minimum necessary information to ensure that existing users, including the £432bn index-linked gilt market, can continue to operate.
As RPI usually provides a figure about 1 percentage point higher than CPI, it is more expensive for employers but provides better pensions for members. Many schemes have RPI hardwired into their rules.
Barnardo's had argued that its scheme's definition of RPI as "the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval", meant it could adopt a new measure even while RPI continues to be published.
However, the Supreme Court unanimously rejected these arguments. It found that as pension scheme rules are drafted by legal experts and are intended to have effect long into the future when contemporary conditions may no longer prevail, the scheme could only change to CPI if RPI was replaced.
"I am persuaded that the judge and the majority of the Court of Appeal were right to conclude that the correct interpretation of the first sentence of the definition is.. that 'the RPI' means 'the RPI or any index that replaces the RPI and is adopted by the trustees'," said Lord Hodge in the judgment.
