UK pensions minister denies 'RPI override', unveils consultation paper
UK - Pensions minister Steve Webb has reassured private sector pension schemes there will be no legislative changes overriding increases for schemes where the retail price index (RPI) is "hard wired" into the scheme rules.
Speaking in Parliament today, Webb said: "I am pleased to announce to the House that we do not plan to grant schemes a modification power. We believe members' trust would have been severely damaged by this."
Webb's clarification followed the publication today of a consultation paper setting out proposals on the switch from RPI to the consumer price index (CPI) for private sector pension increases, but only where scheme rules allow this.
He added: "We do not believe government should intervene to give pension schemes powers to change their rules if they do not already have such powers, and our consultation out today will seek views on this approach.
"We need to ensure people can have confidence in their pensions."
Leading pensions experts, including the chief executive of the National Association of Pension Funds, Joanne Segars, had expressed concern the government might introduce legislation to make it mandatory for pension schemes to adopt the lower inflation measure.
But the consultation says: "Schemes with rules that specify RPI for pension increases will continue to increase pensions according to the rules, except in years where the statutory minimum calculated using CPI is higher than RPI under scheme rules."
Pensioners had complained that a change from RPI to CPI could have reduced their pensions by 20% over the course of their retirement.
The Royal Statistical Society recently recommended the government review the choice and methodology of inflation indices, while the National Association of Pension Funds had complained that six in 10 UK defined benefit pension schemes had RPI indexation "hard wired" into their scheme rules.
Mike Smedley, pensions partner at KPMG, said: "We are not surprised that there will be no overriding legislation to allow schemes with the RPI measure hard-coded in their rules to change to CPI.
"But it will be a disappointment to companies that only have RPI indexation due to past legislation and are now unable to benefit from the change in policy.
"It also leaves members with a 'small-print lottery', whereby pension scheme members in otherwise identical schemes will have different increases and revaluations in future, depending on which approach was taken on drafting their scheme rules."