Since the Government published their Green Paper seeking thoughts on whether trustees should be able to change indexation from RPI to CPI, the outcome of a case involving Thales’ scheme has shown that RPI is still widely considered as an appropriate index.

The Court was asked to give a decision on whether changes to the composition of RPI, the index used by trustees in revaluation of CARE section salaries and for determining increases to certain pensions in payment, had materially changed such that a different index could be used.

According to the scheme’s rules, “the nearest alternative” index to RPI could be used if RPI ceased to be published or was materially changed. Similarly the trustees could determine a basis for increases to certain pensions in payment if RPI “is revised to a new base or if that Index is otherwise altered”.

The judge held that the “nearest alternative” index is in fact RPI and should therefore continue to be employed by the trustees.

The decision demonstrates that:

  • proper interpretation of a scheme’s governing documents remains key and that an alternative index “cannot be adopted simply because it is perceived as a ‘better’ index”
  • both RPI and CPI can be held to achieve the objective of protecting pensions in payment against the effect of price inflation
  • despite increasing claims that CPI is the more appropriate index to use in determining pension increases, RPI is still widely used and may continue to be considered appropriate.

The full decision contains a useful summary and method of RPI and CPI calculation.