BT, Ford and M&S schemes consider legal challenge on RPI reform

The schemes had jointly requested an extension after being approached by the government, which cannot itself make such requests. 

Because of the complexity of the case, the government argued that it would need more time to prepare its defence, and so the three schemes made the request to secure it an extension.

Pensions Expert understands that, although no final decision has yet been reached, the three schemes are likely to push ahead with their demand for a judicial review at the end of the six-week extension.

Aligning RPI with the CPIH without any mitigating steps will result in substantial wealth redistribution, with significant negative impacts on a large number of the scheme’s members, on the value of the scheme’s assets, on its funding position, and on its sponsor

BTPS

Complaints were made when the reform was first announced about the lack of compensation for the holders of RPI-linked gilts and securities. 

Pensions Expert reported at the time how aligning RPI with CPIH, which typically runs at one percentage point lower year on year, would negatively affect schemes with a large proportion of assets held in index-linked gilts.

In its response to the consultation, BT Pension Scheme warned: “Aligning RPI with CPIH without any mitigating steps will result in substantial wealth redistribution, with significant negative impacts on a large number of the scheme’s members, on the value of the scheme’s assets, on its funding position, and on its sponsor.”

Pensions Expert understands these concerns have not been put to bed in the interim.

The schemes’ trustees consider that they have a fiduciary duty to their members to challenge the move, given the deleterious impact it is likely to have on the value of scheme assets, deficits and member pensions.

Though the Ford and M&S schemes have not put the precise impact in the public domain, BTPS has calculated that the reformed RPI will affect 82,000 of its 280,000 members, reduce the value of the schemes’ assets by £3.7bn, increase the scheme’s deficit by £1bn, and reduce the value of pensioner incomes by £2.8bn.

There is also concern that women, who live longer, will be disproportionately hit by the reform.

In proceeding with their application for judicial review, the schemes will look to force the government to show that it fully considered the consequences of the reform, and to justify its calculations.

The trustees now have until April 7 to finalise their decision and formally request the review.

Check scheme rules carefully

Rectification issues will continue to affect schemes and their members in the interim, and the High Court on Friday handed down another rectification ruling, this time reinstating the power to the Iggesund pension scheme to choose CPIH over RPI.

That power was thought to have been lost after it was deleted during an update to the scheme’s rules in 2004. The effect of the deletion had been to hardwire RPI as the basis for calculating pension increases.

However, the High Court could find no evidence that the deletion had been deliberate and intended, which it would have to have been for the change to be legally binding. As such, the court ordered the reinstatement of that power to the scheme actuary, rectifying the error.

Commenting on the case, Oliver Reece, partner at PwC, which discovered the error, said: “Succeeding in a rectification case requires careful planning, in particular with the collation, analysis and presentation of evidence.

“The master presiding over the High Court case thanked the instructing solicitors for their very thorough review and detailed work in preparation for the hearing, making it easier to grant the rectification relief.”

Pensions Expert has previously reported on instances where accidental rule changes have been overturned by the courts, with the conclusion in each case being that changes made in error can be rectified, providing it can be shown those changes were not intended.