We reported in December 2010 on this subject, a copy of that update can be seen here: December RPI/CPI.
The consultation by the Department for Work and Pensions (the "DWP") is still ongoing and is due to end on 2 March 2011. This consultation concerns the impact on private sector schemes of the Government's decision to switch from the Retail Prices Index ("RPI") to the Consumer Prices Index ("CPI") for public sector schemes as the index for the revaluation of deferred pension benefits and the indexation of pensions already in payment (including GMPs).
In the meantime the government has published the draft Pensions Bill 2011. This was issued to the House of Lords for its first reading on 12 January 2011. The Pensions Bill 2011, in its current form, reflects the government's proposals outlined in the RPI-CPI consultation:
- Those schemes which currently provide uncapped revaluation to all benefits, including GMP, (without reference to the statutory minimum) will be permitted to continue to do so provided the value of pension provision is maintained by reference to the rise in the general level of prices in Great Britain;
- Schemes should continue to pay pension increases and to apply revaluation in line with the Scheme Rules. Whether CPI is automatically adopted by schemes will therefore depend on what the Rules provide for. As expected, there are no provisions in the draft Bill which would allow schemes to override restrictions in their amendment power. In broad terms some schemes will consequently automatically move to CPI, some will stick with RPI and some will move to a mixture of RPI and CPI. It is very important that Trustees seek legal advice regarding their Scheme rules to ensure the correct index is used in benefit calculations;
- Cash balance schemes will no longer be required to provide a scheme pension or annuity which is uprated in line with LPI. This won't affect any pensions or annuities which have already been set up.
Once the DWP's Consultation has closed and responses have been considered there may well be amendments to these proposed draft provisions.