“There are various forces at work, and one of them is if there is political will and political time to unravel all of this.”
And even in the cases where pension schemes are allowed to change the inflation measure, a lot of them won’t do it, argued Rosalind Connor, partner at ARC Pensions law firm.
She said: “The British Airways case last year was all about a fight between the trustees and the employer about whether members should be compensated when the scheme rules automatically moved from RPI to CPI.”
RPI rose by 3.6 per cent in the second quarter of 2017 and is expected to be hovering around the 3 per cent inflation mark by 2020, according to the Office for Budget Responsibility.
CPI inflation, in contrast, was 2.7 per cent in the second quarter of 2017 and is expected to be levelling out at the 2 per cent mark by 2020.
Pension schemes use inflation for two measurements: revaluation, the period from when the member leaves the scheme up to retirement; and indexation, which measures how much a pension goes up each year in retirement.
Sir Steve said: “Put them together, you can be talking 40 years. And if you get 40 years at a higher percentage than a lower, that might be a very material difference for a lot of pension schemes.”
Paul Hamilton, partner at Barnett Waddingham, explained that the main reasons schemes are in deficit is because of increased life expectancy, and low expected investment returns.
He said: “Both of these also make increases even more expensive, so schemes struggling to fund their benefits would often prefer to use the lower inflation measure – CPI, and for those unable to, it can seem unfair that other schemes can, just because their rules were worded slightly differently.”
According to William Burrows, retirement director at Better Retirement, the impact of changing the inflation measurement will depend on the size of the pensions.
He said: “For small pots the difference is small but for bigger pots it can make a big difference.”