Pension schemes granted judicial review of govt's RPI swap

Pension schemes granted judicial review of govt's RPI swap

The trustees of the BT, Ford and Marks and Spencer pension schemes have been granted a judicial review of the government's decision to replace the retail price index with the consumer prices index including housing costs from 2030.

According to a joint statement from BT Pension Scheme, Ford Pension Schemes and Marks and Spencer Pension Scheme, the hearing is expected to take place in summer 2022.

The trustees of these defined benefit schemes, which represent nearly 450,000 members and £83bn of assets, will contest the government’s move, which they claim would cause detriment to their members. 

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In February, the schemes were granted an extension to the period in which they can consider filing for judicial review, following a request from the government to have more time to prepare its defence.

Index-aligning RPI with CPIH, which typically runs at 1 percentage point lower year on year, will negatively affect schemes with a large proportion of assets held in index-linked gilts.

It is estimated that more than 10m pensioners will be poorer in retirement either from lower payments or lower transfer values as a result of the effective replacement of RPI with CPIH.

Women will suffer the most from this change as they typically live longer, according to the schemes. 

The reform will also 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 trustees added.

Complaints were made when the reform was first announced in November about the lack of compensation for the holders of RPI-linked gilts and securities.

Though the Ford and M&S schemes have not put the precise impact in the public domain, BT Pension Scheme has calculated that the reformed RPI will affect 82,000 of its 280,000 members, reduce the value of the scheme’s assets by £3.7bn, increase the scheme’s deficit by £1bn, and reduce the value of pensioners’ incomes by £2.8bn.

The schemes’ trustees consider they have a fiduciary duty to their members to challenge the move, given the impact it is likely to have on the value of scheme assets, deficits and member pensions.

Maria Espadinha is editor of FTAdviser's sister title Pensions Expert