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Unions lose pensions switch appeal

The Court of Appeal has rejected a challenge by trade unions against a change in the way public sector pensions are protected against inflation. Trade unions had objected to the government’s plans to adjust pensions by reference to the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI).

21 March 2012

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CPI and RPI are measures of inflation - or the cost of living - based on the prices of baskets of goods and services. The RPI basket includes mortgage interest payments and some other housing costs and is generally higher because of the formula used to calculate it.

The High Court ruled in December that the government’s switch in calculations was lawful. The Court of Appeal has now upheld this decision unanimously, ruling that the government would have made the switch, even if the UK’s economic situation had been discounted.

Giving the judgment of the court, Lord Neuberger said: “Section 150(1) leaves it to the secretary of state to select the method by which he estimates whether, and if so to what extent, certain benefits and pensions have lost ‘their value in relation to the general level of prices obtaining in Great Britain’ during a particular year.

“The obvious way, or at least an obvious way, of making such an estimate is the use of an official, professionally compiled index, whose function is to measure the extent to which prices of consumer goods and services have increased in sterling terms over the period in question, and CPI is such an index.”

Provided that the Secretary of State acted rationally and took all appropriate (and no inappropriate) matters into account, it was a matter for him which such index he chose, the Master of the Rolls said.

The Appeal Court judges refused the unions permission to appeal to the Supreme Court, although the unions can ask the Supreme Court directly for permission to do so.

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