RPI/CPI: RPI, or new Chapter?

20 / 12 / 2016

Relief for members and disappointment for employers: on 2 November 2016 the Court of Appeal upheld the High Court decision in Buckinghamshire v Barnardo’s, thus precluding the Barnardo’s scheme trustees from any switch from RPI to CPI for pension increases.

The Barnardo’s scheme rules defined “Retail Prices Index” as the index published by the Department of Employment “or any replacement adopted by the Trustees without prejudicing Approval.”

In 2015 the High Court decided that “replacement” meant officially replaced and that, as RPI remained officially published, it had not been replaced. Therefore, under the scheme rules the trustees could not switch from RPI to CPI increase. For further background please see our November 2015 e-Bulletin article To switch or not to switch: that is the question.

Court of Appeal’s decision on 2 November 2016

In the Court of Appeal the employer argued that “replacement” of the index meant the trustees’ decision to adopt a replacement index in place of RPI whether or not RPI has been officially replaced. The Court of Appeal disagreed and, on the particular wording of the Rules, held that the power to switch arises only if RPI has been officially replaced.

Is the Court of Appeal’s decision the end of the road?

Answer, not necessarily. Although the Court of Appeal refused permission to appeal to the Supreme Court, we understand that permission to appeal is being sought from the Supreme Court itself.

What are the prospects for a successful appeal to the Supreme Court?

On the face of it, the prospects are in our view good. The Court of Appeal decision was by only a 2 to 1 majority, with the Chancellor of the High Court strongly disagreeing with his two fellow judges.

In the Chancellor’s view, in interpreting the definition of “Retail Prices Index” in the Rules less emphasis should be given to the Appendix to the Rules and more to the Rules themselves.  The Appendix reflected the pre-2006 Inland Revenue Limits relating to maximum benefits under the scheme including maximum rates of pension increases. As the Chancellor put it, the High Court “judge started his approach to construction [interpretation] with the Appendix and worked backwards. That approach was, I think, a mistake“.

Given the Chancellor considered the Rules ambiguous, he considered that “business common sense” was also definitely a factor to be taken into account alongside interpretational aspects. This led the Lord Chancellor to the “clear conclusion” that the trustees were entitled to decide whether to replace RPI and were not reliant on there first being an official replacement of RPI.

Did the 3 Court of Appeal Judges agree about anything?!

Yes. They all confirmed that the earlier High Court decisions in “QinetiQ” and “Arcadia” (see our November 2015 article), were correct in deciding that where scheme rules give trustees’ discretion to switch index, members do not have a right under Section 67 Pensions Act 1995 to a specific index, so as to prevent a switch to a new index for future pension increases. So at least this point has been settled, or has it?

If there is an appeal to the Supreme Court, the members may, as they did in the Appeal Court, cross-appeal and argue that Section 67 prevents any switch in index.

Learning points

Minute differences in the wording of Rules can lead to different results. Trustees and employers considering switching index should obtain detailed legal advice on the impact of the precise wording in their scheme rules.

For further information please contact Clive Weber at cweber@wedlakebell.com.