Consultation on CPI

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08 December 2010

The government is not proposing to give schemes any statutory help to adopt CPI.  Whether it applies will largely depend on the wording of scheme rules.  

In some schemes - that say "revaluation / indexation will track statutory requirements" - it will apply automatically.  But in schemes that refer expressly to RPI - "revaluation / indexation will be RPI up to a maximum of 2.5%" - the question will be whether they can be amended.  This depends on the scope of available amendment powers, the meaning of any express restrictions on them, whether the trustees will agree, and any application of section 67 of the Pensions Act 1995.

Schemes in the latter group that are interested in adopting CPI face a fair amount of work investigating what is possible.  On the whole we expect it will be relatively unusual for them to make a rule change in relation to past service benefits.

The net result is that CPI will apply much less widely than if the government imposed it on schemes with an override or created a statutory power of amendment to make it easier for them to introduce it.

There will, however, be legislation to prevent schemes that refer expressly to RPI having to provide the better of the two measures when CPI is higher.  

Rule amendments to adopt CPI will require 60 days' consultation by the employer.

A firm decision has been taken that the revaluation order for next year will be based on CPI.

Paper

This is the proposal, out today. The brief consultation paper asks for views on it.    

The main reason the government gives for not offering more legislative help is that it would undermine confidence in pension schemes.

The consultation closes on 2 March 2011.

The paper is set out here.

If you would like more information, please get in touch with your regular contact in our pensions team or with Marcus Hellyer on 0117 902 7789 or marcus.hellyer@burges-salmon.com.

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