Britvic reaches interim agreement on CPI/RPI linking

CPI inflation is currently 2 per cent, while RPI is 2.8 per cent, according to July figures from the Office for National Statistics. Compounded over the years, the choice of the less generous index can result in pensioners losing thousands of pounds, despite CPI being considered a more accurate index.

According to law reporting service Law360, the High Court of England and Wales gave the go-ahead for the trustees of Britvic’s occupational pension plan to instruct the administrators to pay increases on all pensions that are already being paid out, in line with a provisional rate requested by the company until the final outcome of the case is decided.

“The first defendant as trustee of the plan is sanctioned to implement the terms of the interim agreement and to pay and calculate the 2019 increases accordingly,” Chief Master Matthew Marsh said in an order, filed with the court on August 29.

While each case does succeed or fail on its own particular merits, the vast majority fail

Penny Cogher, Irwin Mitchell

A Britvic spokesperson confirmed: “Britvic recently received court approval for an interim arrangement for the 2019 pension increase, which will ultimately be subject to the outcome of a further court application on the construction of the rule. This will determine if and to what extent Britvic is able to set an alternative rate of annual increase.”

The application was granted without a court hearing.

According to Law360, the company is seeking declarations on six different matters, including whether it can cut the rate of future increases to below 5 per cent for those pensions that paid out up to June 2008, or to below 2.5 per cent for those that started after that date.

The soft drink maker also wants clarity on its powers under the pension plan rules, particularly on whether it can set varying rates of future increases for different tranches of pensions.

Courts take dim view of index-shopping

Commenting on the first steps in what is expected to be a lengthy court case, Stephen Scholefield, partner at Pinsent Masons, said: “Where the court is asked to decide how benefits should be calculated, it can take a couple of years for a case to work its way through the system.”

He advised: “It’s important that trustees are clear how they should pay benefits throughout the court process, conscious of the risk of under or overpaying members depending on what the court eventually decides. Here, the court has sanctioned the trustees paying benefits on an interim basis, which provides reassurance that they can’t subsequently be criticised for having done so.”

Doubts remain as to how successful the soft drinks manufacturer will be. BT and Barnardo’s have both recently lost court battles on this controversial issue. However, Penny Cogher, partner at Irwin Mitchell, says: “It is unusual for trustees to agree to adjust the payment of pension increases downwards before the main High Court hearing and judgment as this is when all the arguments are heard in detail in court.

"Getting this downward adjustment agreed on an interim basis by a High Court Master does give comfort to the trustees. However, the fact they are prepared to go down this route, before the actual court hearing, leads me to suspect that Britvic has a very good case and that perhaps the current methodology used to determine the rate at which pension increases are being paid has been wrong in the past."

“We shall have to wait and see. It is not unusual for employers and trustees to revisit earlier decisions on this made at a time when perhaps members were given the benefit of the doubt, due not to how the scheme rules were drafted but to what was said in accompanying member communications," she added.

The RPI/CPI debate has been rumbling on ever since 2010, when it was announced that increases to state pensions, public sector pensions and statutory increases for private sector pensions would, in future, be linked to CPI rather than RPI.

Deborah Cooper, a partner at Mercer, emphasises: “It is a lottery very much dependent on scheme rules and is a very arbitrary way to take things forward.”

Fudging the RPI/CPI divide

Those wishing for legislation overriding the lottery may yet have their wish. On Wednesday, the chancellor announced plans to consult on whether to align the RPI with a version of the CPI between 2025 and 2030.

This intention was revealed in a letter from Sajid Javid to Sir David Norgrove, chair of the UK Statistics Authority. Sir David had recommended that the publication of the RPI be stopped, and in the interim the shortcomings of the index should be addressed by adopting the methods of the CPIH, which includes a measure of housing costs in CPI.

In a statement, Sir David said: “We have been clear that the RPI is not a good measure, at times significantly overestimating inflation and at other times underestimating it, and have consistently urged all – in government and the private sector – to stop using it. However, the RPI is unique as we need consent from the chancellor to make certain changes, such as the one we have proposed.

“Although we regret that no change will occur before 2025, we welcome the chancellor’s intention to consult on resolving current issues with the RPI.”

Mr Scholefield adds: “The consultation about bringing RPI into line with CPIH would reduce the so-called lottery for pension schemes, as while RPI would continue to apply, it would be in its reformed state, which would be similar to the other widely used index, CPI.

He continued: “Pensioners may not welcome the change, but it is difficult to argue strongly in favour of a flawed calculation basis, especially if it flows though more widely in the economy at the same time.”