Trustees of the BT Pension Scheme, Ford Pension Schemes and Marks and Spencer Pension Scheme have shown great disappointment following yesterday’s High Court judgment upholding the decision by the UK Statistics Authority (UKSA) and the Chancellor of the Exchequer to align the Retail Prices Index (RPI) with the housing cost-based version of the Consumer Prices Index (CPIH) from 2030.

Last December the High Court granted permission for a judicial review to be heard on the UK government’s plan for reforming the RPI.

“We are disappointed that the UKSA has been allowed to align the RPI with CPIH from 2030 without proper consultation and consideration of the impact such a decision will have on schemes holding RPI index-linked bonds and the retirement incomes of their members,” a spokesperson for the three schemes stated.

“Many investors, including pension funds, bought index-linked gilts in good faith and now face losses of £90bn to £100bn,” the spokesperson added.

“This decision will leave millions of pensioners in defined benefit schemes with RPI linked benefits poorer through no fault of their own and facing substantial decreases in their year-on-year income. Women will be particularly impacted since they live longer and retire earlier,” the spokesperson continued.

The judgment also means that the Chancellor is not required to pay compensation as a result of the indexation change.

The action was brought by the trustees of the three pension schemes last year to challenge the indexation reforms which significantly reduce the value of RPI-linked assets held to meet pension promises to members, weakening schemes’ funding positions and, in turn, adding pressure on sponsoring employers.

The schemes, whose combined defined benefit schemes together represent £83bn (€96bn) of assets and 438,763 members, are considering the judgment, including whether to seek permission to appeal the judgment.

Jos Vermeulen, head of solution design at Insight Investment, said: “We are disappointed that the government will be allowed to push ahead with their plans for RPI reform. Insight and a broad range of market participants highlighted significant concerns about the proposals during the government’s 2020 consultation.

“It was of no surprise that three UK defined benefit pension funds felt they had no choice but to challenge the government’s decision, which will result in a transfer of wealth in the region of £100bn from index-linked gilt holders (largely pension funds) to the government.”

He added that this would reduce pension transfer values and lifetime incomes by 10% to 15% or more. “With inflation surging many pensioners are already struggling and RPI reform represents an additional and entirely unnecessary blow,” Vermeulen said.

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