The Government announced the following changes which has affected many OPA members:

A) Changing from the RPI to the CPI as a measure of increases in prices from April 2011 changes the annual increases for Graduated Pensions, State Second Pension (S2P), SERPS, and hence Guaranteed Minimum Pensions (GMPs). Thus all members with contracted out occupational pensions will be affected.

The Basic State Pension is now increased by the greatest of prices, earnings or 2.5%. Prices are determined by the CPI, but for 2011 the increase was to be at least the RPI. For 2012 the increase will be CPI based if greater than either 2.5% or earnings.

B) whether an occupational scheme is applies the CPI to future increases on pensions above the GMP is dependent upon the exact wording of the Trust Deed and Rules. If the RPI is specified then the Trust Deed would have to be amended to apply the CPI   How the Deed is amended will again depend upon the exact wording in the Trust Deed.  It is apparent that scheme rules differ widely and trustees have to consider what action they are permitted to take.

C) one significant consideration for trustees was what constituted “accrued rights” in relation to members whose benefits have until now been escalated by reference to RPI.

Furthermore, unless and until the government amends the legislation, Section 67 of the Pensions Act 1995 will still apply to accrued rights. Namely, if RPI or some other method of calculating annual increases is specified in the Trust Deed, then any changes cannot affect pensions in payment or revaluation of deferred pensions. The changes can only affect future service.

The government will not repeal the legislation regarding the Limited Price Indexation (LPI). This allows schemes to limit any annual increase to the LPI (currently set at 2.5%) if they  wish to do so. However, this again will be entirely dependent on the wording of the Trust Deed and Rules and again Section 67 still apply.

D) OPA members should examine the Rules of their schemes to determine exactly what they say regarding annual increases.

The Government announced its decision NOT to legislate to over-ride those schemes which contain "hard-wired" RPI increases. However the pension providers will continue to campaign vigorously for a reversal of that decision.

More: Pension Policy Institute Briefing Paper: How CPI indexation could affect your pension

See also:
#Indexation and the Council Tax

The Betrayals
“Indexation of pensions in payment is an established part of pensions legislation. The Conservative Party has no plans to change the current index-linking of public sector pensions in payment. We agree with the view that the right to indexation of pensions already accrued is part of the accrued pension rights and those rights will be protected.”

Philip Hammond, 27 April '10, (the then Conservative Shadow Chief Secretary to the Treasury)

“We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept. Therefore we would not make any changes to pension rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected.”

Steve Webb (LibDem), now Pensions Minister, in a letter dated 12 April 2010