Indexation row gets political as broken pledge accusations fly

Steve Webb
Webb: Assured civil service pensioners

THE GOVERNMENT has pulled back from a plan to introduce an override that would allow schemes with RPI hard-wired into their terms and conditions to replace the indexation measure with CPI.

But its switch from RPI to CPI indexation for public sector schemes, which will allow around 40 per cent of private sector DB arrangements to follow suit, has been attacked by Labour and pensioner groups.

Pensions minister Steve Webb told the House of Commons in December he would not be going ahead with the change, despite indications made at an NAPF conference a week earlier. But the indexation order introduced in the Commons reduced statutory indexation from RPI to CPI, a move that will cut pension incomes by around 16 per cent over 20 years according to industry estimates.

Pensioner groups are furious at the move, saying it breaches pre-election pledges by both Webb and conservative transport secretary Philip Hammond.

Corporate Adviser has seen a letter from Webb dated April 12 to a pensioner group leader that says: “We would not make any changes to pensions rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected.”

Pensions shadow Rachel Reeves accused LibDem pensions minister of breaking two election pledges in one week, as the switch to CPI came the day before the vote on raising tuition fees.

The DWP argues CPI is a more suitable measure of pensioner inflation than RPI because it does not include housing costs. Reeves says; “I have seen the letters that Steve Webb and Conservative transport secretary Philip Hammond sent to pensioners pledging not to interfere with indexation of accrued rights, and now the government is doing just that. With the student fee vote the next day, Steve Webb is breaching two of his written pre-election pledges in a week.

“This statutory override is an attack on the accrued rights of people who have paid into these schemes on the basis they were going to get a certain return.

“I have written to Steve Webb pointing out that there is no way he can claim CPI is a better measure of pensioner inflation. By introducing a statutory override, the government is riding roughshod over people’s legitimate rights.”

“Steve Webb has conceded that CPI will rise more slowly than RPI, but says that the question is not which index is higher or lower. “That might not be the question for him, but for millions of pensioners and low-income families up and down the country that most certainly is the question. And they will be asking today how they are going to make ends meet following these changes.”

Webb says: “Prior to the election I assured civil service pensioners that inflation protection for their pensions would not be removed. In the emergency Budget, the coalition Government committed to increasing civil service pensions every year in line with the increase in consumer prices – maintaining the link between pensions and inflation.”

A report out by the NAPF has shown that 61 per cent of schemes cannot currently make a switch from RPI to CPI because they have RPI indexation hard-wired into their pension scheme rules. It also shows three out of ten managers of DB scheme think employers should be allowed to remove RPI indexation without trustees consent, new research shows.