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Supreme Court hears Barnardo’s RPI/CPI Appeal

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Dentons’ Reward team are advising the Representative Beneficiaries of the Barnardo’s Staff Pension Scheme (“the Scheme”) in an application to the Supreme Court to decide whether the Scheme rules permit a switch from RPI to CPI for revaluation or indexation of pension payments.

Both the Retail Prices Index (RPI) and the Consumer Prices Index (CPI) measure inflation, but do so in different ways. Because of the different calculation methods used, CPI has an inflation rate that is, on average, 1% lower than RPI. This means that a switch from RPI to CPI (if the scheme rules allow it) would reduce pension scheme liabilities by a large amount but also see members receive reduced inflation protection.

In 2016, the Court of Appeal rejected Barnardo’s appeal that a switch from RPI to CPI was possible under the Scheme rules. On 11 June 2018 Barnardo’s further appeal was heard by the Supreme Court.

The appeal turned on the construction of the relevant Scheme rule which states that “Retail Prices Index” means RPI or “any replacement adopted by the Trustees without prejudicing [Revenue] Approval”. The key issue is whether this allows a switch while RPI continues to be published (although it has been superseded by CPI as the Government’s measure of inflation).

The Representative Beneficiaries submitted that the correct interpretation of the Rule should reflect the natural meaning of the language used. To take any other meaning would require an objectionable reading in of additional words, which would depart from the intended meaning of the Rule. Additionally, it was submitted that members should expect to use the Rules as the main source of ascertaining what they are entitled to. Attaching weight to contextual matters (as Barnardo’s sought to do) is risky, as such matters may not be widely known or considered by members.

The Representative Beneficiaries also cross appealed, claiming that if it was held such a switch could be made, this would nevertheless breach the requirements of s67 of the Pensions Act 1995 and would be invalid. However,  after hearing submissions on Barnardo’s appeal the Supreme Court decided that it need to hear submissions on the cross appeal.

We eagerly anticipate the Supreme Court judgment in the coming weeks, and shall provide a further blog update at this time. In the meantime, if you have any queries in relation to how an RPI/CPI switch would effect your pension scheme,  please contact the Reward team to discuss.