UK - A group of pension experts today warned the Department of Work & Pensions that proposed changes linking pension increases to the consumer price index (CPI) rather than the retail price index (RPI) could be in violation of the country's Human Rights Act.
In a letter composed by online community Mallowstreet, members warned of the "potential nightmare" the new regulations could cause.
Philip Read, chairman of the Trustees for the British Coal Staff Superannuation Scheme, said the initial winners from the switch, which would require many pension schemes to amend their rules, would be lawyers and actuaries.
Further, he said tensions between employers, scheme members and pension trustees was "likely to be explosive", as was already the case in other European countries.
He said: "It appears that the intent of government is to make the new CPI link apply to all pension increases, for pensioners and for deferred pensioners. This would be a retrospective decrease of benefits, prohibited by Section 67 of the Pensions Act 1995.
"If the amendment is made retrospective, would this not be in breach of the Human Rights Act, leading to action by trades unions, trustees and members in the European Court," Read asked.
He argued that the one way to avoid such a scenario was for new legislation to specify that the switch to CPI was retroactive, "explicitly to override the existing rules in every pension scheme". This, he said, would protect both trustees and employers from potential legal action.
The letter, signed by 25 members of the networking site is understood to include industry figures from Commerzbank AG Life and Pensions Assurance Plan, as well as Redington Partners and HSBC, was sent to both the secretary of state for work & pensions Iain Duncan-Smith and pensions minister Steve Webb.
It said: "Dear DWP, your proposal to change the linkage of pension benefits from RPI to CPI will affect the benefits of many pension fund members. Before any further steps are taken towards this significant change, please announce that you will implement a proper consultation process across the pensions industry."
Experts had previously warned that a switch to CPI could add complexity, while the National Association of Pension Funds said it risked creating an investment mismatch.
Please note: Towers Watson was not a signatory as first stated, however an employee from the consultancy was quoted in the submission commenting on the shift to CPI.