Court Of Appeal Rules On Changing Pension Increases From RPI To CPI

Barnardo's v. Buckinghamshire [2016] EWCA Civ 1064

Background

The rules of the Barnardo's pension scheme (the Scheme) provide for annual increases of the lower of 5% or the increase in the retail prices index (RPI). Barnardo's proposed to the Trustees that they substitute the consumer prices index (CPI) for RPI. If successful this would have reduced the Scheme deficit on a technical provisions basis by c. £36m and on a buy-out basis by c. £74m. However, it would also have significantly reduced members' pension increases in future years.

The Trustees asked the High Court for directions on whether they had power to change from RPI to CPI. Warren J ruled on 28 July 2015 that the Trustees could not make the change. Barnardo's was given leave to appeal to the Court of Appeal. The members' representatives were also given leave by Warren J to cross-appeal on the ground that, even if the Trustees had power to change from RPI to CPI, they still could not do so as this would breach section 67 of the Pensions Act 1995 as a modification that adversely affected members' accrued rights or entitlements. The section 67 issue was not raised in the High Court because two High Court decisions: viz Danks v. Qinetiq and the Arcadia case, had decided section 67 had no application and this, prevented the members' representatives raising it at that level.

Did the Trustees have power to change from RPI to CPI?

The Court of Appeal held that the Trustees did not have power to change from RPI to CPI. This was a matter of interpretation of the definition of RPI in the Scheme rules which stated:

"Retail Prices Index means the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval ...".

The critical words were "or any replacement adopted by the Trustees without prejudicing Approval". Did this mean that RPI would have to be replaced by another index before the Trustees could adopt it, or that the Trustees could adopt another index, such as CPI, whether or not RPI had been replaced?

Lewison LJ (with whom MacFarlane LJ agreed) decided that the Trustees could only move from RPI if it was replaced by another index. His reasons were:

the natural meaning of the words in the definition indicated that there had to be replacement of the RPI index before adoption by the Trustees; the definition also referred to the index being replaced or rebased in a way that pointed to this being done by the...