In previous bulletins, we reported on the government proposals to allow schemes to switch from RPI to CPI as the inflation measure for revaluing deferred pensions and increasing pensions in payment. We look at the provisions in the Pensions Bill 2011 in relation to these measures and the obstacles they present for schemes.
- Restrictions contained in scheme amendment powers may make it difficult for schemes whose rules specifically refer to RPI to switch to CPI for past service. It is looking increasingly unlikely that the government will be introducing a "statutory override" to help with such cases with the consequence that such schemes may only be able to switch to CPI for future service.
- Changes to the Bill made earlier this year mean, broadly, that schemes that pay RPI based increases to pension in payment will not, as originally thought, have to put in place an underpin providing increases at the higher of RPI and CPI. There are, however, gaps in the easement as currently drafted – we understand that the Government may be considering amending the draft legislation to close these gaps.
- The government is unlikely to amend the Bill to provide a similar easement for revaluation – schemes with revaluation rules that expressly refer to RPI will probably have to provide a CPI/RPI underpin.
- Restrictions in section 67 of the Pensions Act 1955 relating to modification of scheme rules could prevent schemes from switching to CPI – we understand that the Government may be considering providing confirmation that this is not the case.
We are advising a number of schemes with RPI that are considering switching to CPI, following actuarial advice received by those schemes that switching to CPI could improve their funding levels and the scheme deficit. Some of the schemes we advise wish to retain the status quo and continue paying increases by reference to RPI– these schemes also need to consider how the new provisions affect them, and consider if there is need for a CPI/RPI underpin.