Judges at the Appeal Court in London have upheld an earlier ruling that the government acted lawfully by switching the mechanism it will use to calculate inflation-proofing in public sector pensions to the normally less generous CPI rate.
Challenging the switch to CPI – which excludes household costs such as rent, house prices and Council Tax – from RPI was seen as a vital part of the unions’ attempt to safeguard a key element of the retirement income of millions of public sector workers at a time when Coalition ministers are seeking to slash the cost of the pensions bill.
(Pictured: unions begin court challenge, October 2011)
Unions have calculated that switching the inflation index will result in average losses of 15% to 25% in the value of members’ pensions and will have a knock-on effect on private sector pensions running into tens of billions of pounds.
During the appeal, before The Master of the Rolls (Rt. Hon. Lord Neuberger of Abbotsbury), Lord Justice Maurice Kay (Vice President of the Civil Division of the Court of Appeal) and Lord Justice Sullivan, lawyers for the unions had argued that a significant factor in the Secretary of State’s decision last year to switch to CPI was the savings which would be made by the Treasury.
Unions said this was not justified, was ‘putting the economic cart before the horse’ and that it reneged on assurances given by successive governments that RPI would apply.
Unions had also tried to argue that it would be fairer on people receiving pensions if the government adopted a new method of indexing pensions which more accurately reflected the actual spending of people in retirement.
The judges ruled the government was entitled to take into account the national economic situation when deciding to adopt CPI from this year. They also ruled that, even if the national economic situation had been discounted, the government would still have the adopted CPI on the basis of the advice it had received.
Prospect, one of the unions which took the case to court, has expressed extreme disappointment at the decision.
Deputy general secretary Dai Hudd said: “The implications of this decision go beyond our members in the civil service and public sector, reaching out to members in the private sector in areas like BT and British Aerospace.
“Our campaign to see a review of the Consumer Prices Index is shared by other bodies such as the Royal Statistical Society and will be given further impetus by this decision.”
In all, eleven unions – including Prospect – and a retired members’ organisation took out the joint appeal.
Brian Strutton GMB National Secretary for Public Services said: “How could it be right that pensions already being paid could be reduced by around 15% in value just at the whim of the government?
“Unfortunately the Courts seem to take the view that the government can do what it likes even if this amounts to taking money off pensioners just because they used to work in the public sector.”
Prospect‘s Dai Hudd added: “This is just one of many injustices inflicted on public and private sector pensioners by this government. Members in the civil service are about to face three years of pension contribution increases that will go straight back into the coffers of the Treasury.
“At the same time they have endured a two-year pay freeze followed immediately by a two-year 1 per cent pay cap, and plans to introduce regional pay.
“There seems to be no let-up from this government in its attacks on ordinary people’s standard of living.”
The CPI switch was announced in the June 2010 Budget without consultation and took effect from April 2011.
Over time CPI is 1.4% lower than RPI, according to the Office for Budget Responsibility.
The government has given private sector schemes the green light to apply the same change if their rules allow.
The Department for Work and Pensions last year calculated this will reduce the value of pensions accrued in the private sector by more than £70bn. The impact on state benefits and public service pensions will be even higher.
Unions say they will consider the judgement before deciding what further steps to take, including the prospect of lodging a further appeal.