The High Court has rejected the TUC’s challenge to the government’s switch from RPI to CPI for inflation uprating to the public sector pension schemes, saying the move is lawful.
The decision means millions of public sector workers will now see their inflation protection linked to CPI instead of RPI, cutting between 17 and 20 per cent off the value of the total pension received by public sector workers.
The latest Office for Budget Responsibility estimates put the differential between the two indices at between 1.3 and 1.5 per cent a year.
TUC general secretary Brendan Barber says:“This is a disappointing judgement for pensioners and scheme members whether they draw a private, public or state second pension.
“But we take great heart that the court accepted the argument that the government did this to cut the deficit rather than carry out a proper consideration of the best way of measuring the cost of living for pensioners, even if only one judge said that it was unlawful.“With the Office for Budget Responsibility now predicting that the long-term gap between CPI and RPI will be 1.4 per cent, pensioners in both private and public sector schemes will find that their pensions will be 20p in the pound lower after 18 years of retirement.
“Ministers keep saying that they are cutting public sector pensions for the benefit of private sector workers, but this move hits both, as well as those with a SERPS or state second pension.”
Tom McPhail, head of pension research at Hargreaves Lansdown says: “If we assume that the BoE does eventually hit its CPI target of 2 per cent, then the switch would cost a pensioner retiring at age 65 with a £10,000 a year pension around £46,600 over the duration of their retirement, a loss of around 17.73 per cent in terms of the total payout.
“This switch to CPI will reduce pressure on schemes in both the public and the private sector, however for the members it represents a significant diminution of their pension rights. They will need to adjust their investment, income and expenditure plans in order to avoid a steady decline in their standard of living in retirement.”