In a judgment issued on 31 July 2014, Re Arcadia Group Pension Scheme; Arcadia Group Ltd v Arcadia Group Pension Trust Ltd and another, the High Court was asked to decide the extent to which the Consumer Prices Index (CPI) can be adopted in place of the Retail Prices Index (RPI) when calculating increases to pensions in payment.
This case concerned two pension schemes of the Arcadia Group. The case was brought by the principal employer, Arcadia Group Ltd (Arcadia), and the defendants were the trustees of the schemes.
The rules of both schemes stated that "Retail Prices Index" refers to RPI "or any similar index satisfactory for the purposes of" the Inland Revenue/HMRC. The Court first had to consider whether this definition permitted an index other than RPI to be selected for the purposes of calculating increases to pensions in payment (and, in one scheme, for revaluing deferred pensions). The trustees had argued that the schemes had to use RPI unless, and until, RPI was discontinued or replaced.
Newey J decided that, read against the relevant background, the definition would reasonably be understood to mean that there was a power of selection unconstrained by any requirement for the RPI to have been discontinued or replaced.
Given that reply, the next question was whether the power to select another index was exercisable by the trustees, by Arcadia or by the trustees and Arcadia jointly. Newey J pointed out that, under the scheme’s documentation, Arcadia could not alter any of the members’ benefits on its own – such changes could only be made by the trustees or by Arcadia with the consent of the trustees. He added “It would be odd if the (less explicit) power of selection between indices was, uniquely, capable of being exercised by just Arcadia”. He concluded that the power of selecting the index to be used rested jointly with Arcadia and the trustees.
The judgment went on to decide that CPI is a "similar index satisfactory for the purposes of [the Inland Revenue/HMRC]" as required by the definition of "Retail Prices Index" used in the schemes’ rules.
When considering whether section 67 of the Pensions Act 1995 precluded the selection of CPI for use in relation to past service, Newey J decided that members have a "subsisting right" to increases and revaluation at rates consistent with the definition of "Retail Prices Index", but not to increases and revaluation specifically by reference to RPI. In his opinion, this is in keeping with the findings in an earlier case, Danks v QinetiQ Holdings Ltd, that selecting CPI in place of RPI would not involve a detrimental modification to "subsisting rights" and, hence, that section 67 did not apply.
The wording used in the Arcadia schemes is fairly common. Trustees and sponsoring employers of schemes with similar wording may wish to reconsider their rules in the light of this case.