Consumer Prices Index to be adopted as pension increase measure
12 July 2010
12 July 2010 – The UK Government has announced that it intends to change the measure of inflation used for working out statutory minimum increases to pensions from defined benefit occupational pension schemes. Instead of basing these increases on the Retail Prices Index (RPI), in future it will use the Consumer Prices Index (CPI). The change will apply to revaluation in deferment as well as increases to pensions in payment.
The change will not bite until the next increase is made, which in most cases will be in 2011. However schemes will want to identify the impact quickly in order to respond to member queries.
Anna Rogers, Head of Mayer Brown's London Pensions group, said: “Whether by accident or design, the timing of the announcement should minimise disruption to funding discussions, given that the 15 month deadline after most 2009 valuations has just expired."
Jonathan Moody, partner in Mayer Brown’s London pensions group, said: “We all read the Minister’s statement as saying that they want to reduce costs, although he didn’t actually say that, but don’t forget that CPI inflation has actually been higher than RPI in recent history. If that happened again it could impose a “better of” underpin on schemes whose rules provide hard-coded RPI increases.”
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