Just over four years ago, the government announced that the Consumer Prices Index (CPI) would be used in place of the Retail Prices Index (RPI) as the standard index for determining pension increases in the public sector.  This has fed through into the statutory requirements for revaluation of deferred pensions and increases in payment of pensions under private sector defined benefit occupational schemes. 

The results have however been haphazard, depending on the way individual scheme rules had interpreted the statutory provisions. Some schemes have found that their revaluation and/or increases have changed automatically to CPI, others have found that RPI had been (in some cases unwittingly) “hard-wired”, and others have been left uncertain as to the answer and as to whether there was any discretion to choose between the two.

We are aware of numerous cases where trustees or companies are referring the issues to the courts for guidance. The latest judgment is Arcadia Group Ltd v Arcadia Group Pension Trust Ltd and another.  This confirms the earlier private sector case, Danks v QinetiQ Holdings (2012), and follows the trend of the public sector cases R (Staff Side of the Police Negotiating Board and others) v Secretary of State for Work and Pensions (2011) and R (FDA and others) v Secretary of State for Work and Pensions (2012), in suggesting that the judges, who have themselves had their pensions changed to CPI, are not inclined to interpret rules so as to put obstacles in the way of the move towards CPI in the public and private sectors, but rather to leave trustees and/or employers with considerable discretion. However there has as yet been no judicial guidance as to how trustees who are left with a discretion as to which index to apply should go about exercising this.

Trustees need to be clear whether these cases mean that they may have more discretion than they appreciate.  If they do have a discretion then the law requires that they address the issue directly and determine one way or the other how they intend to proceed.


The latest case concerns two Arcadia pension schemes that contained broadly similar provisions relating to increasing pensions in payment and deferred benefits.

Increases were to be based on the “Retail Prices Index (or any replacement of that index)”.  “Retail Prices Index” was defined as "the Government's Index of Retail Prices or any similar index satisfactory for the purposes of HM Revenue and Customs”.

Questions arose as to the meaning of the provisions above (and related scheme rules).  Mr Justice Newey, in the High Court, was asked to determine four main issues.  Those issues, and his conclusions, are summarised below.

What did the High Court decide in the Arcadia case?

Question 1: Is there a power under the definition of “Retail Prices Index” to select an index other than RPI?

Conclusion: Yes.  This definition confers the power to select an index other than RPI. This power is not just exercisable in the event that RPI is discontinued or replaced. 

Question 2: Who can exercise the power?

Conclusion: Arcadia and the trustee jointly.  While an employer is principally responsible for the initial design of a pension scheme, it does not follow that it is entitled to exercise whatever powers it chooses to provide for. The power of amendment under the schemes is exercisable by Arcadia with the consent of the trustee. It would be odd, therefore, if the power of selection between indices was capable of being exercised by Arcadia alone.

Question 3: Would CPI be a “similar” index which is “satisfactory” for the purposes of HMRC?

Conclusion: Yes.  Given that: (a) pension schemes are no longer approved by HMRC, but merely registered with them; (b) CPI has received government endorsement; and (c) the use of CPI rather than RPI should not be in any way prejudicial to HMRC, there seems no basis on which HMRC could consider CPI to be anything but satisfactory. 

Question 4: Does section 67 of the Pensions Act 1995 (section 67) preclude the selection of CPI for use in relation to past service?

Conclusion: No. Section 67 restricts scheme rules being amended so as to affect members’ subsisting (ie accrued) rights adversely.  In the 2012 QinetiQ case, the High Court held that moving from RPI to CPI for past service (by using a discretion under the scheme rules) did not breach section 67.  Mr Justice Newey concluded that the QinetiQ case was correctly decided. 

Arcadia scheme members’ subsisting rights are to be determined by reference to their schemes’ definition of RPI, which includes a discretion to change indices.  There is no accrued right until the calculation has been made.  So, it would be possible to switch to CPI for benefits derived from past as well as future service without breaching section 67.


This succinct judgment is specific to the rules of the Arcadia schemes.  However many other schemes have similar wording, and minor variations can make a material difference.  For example, the QinetiQ scheme rules expressly gave sole discretion to the trustees.

Most schemes will by now have identified their formal RPI/CPI requirements following the government changes. We are aware, however, of numerous cases where trustees and employers are considering the extent of any discretions that may exist to move between RPI and CPI.  The Arcadia and QintetiQ cases suggest that the judges are not inclined to read scheme rules or statute restrictively so as to limit the discretion of trustees and/or employers to change the index being applied.

While the courts do seem to be allowing for discretion in this area they have yet to give any guidance as to how such discretion should be exercised.  Classically the courts are not inclined to interfere where trustees do have a discretion, provided trustees approach matters rationally and consider the relevant factors.  The “reasonable expectations” of members are increasingly important in this equation, as of course is the state of funding of any particular scheme and the likely deliverability of the benefits.  We are aware of further cases in the pipeline where more judicial guidance is to be sought in this area.

It remains important to take legal advice before making any steps towards switching indices – or indeed not switching.  If scheme rules confer a discretion (and these recent cases suggest that the courts will tend to read them as doing so) the law states that it is incumbent upon trustees to consider directly whether or not to exercise the power.