28 October 2011 #Employment
In the 2010 budget the Government announced that it would adopt the Consumer Price Index (CPI) instead of the Retail Price Index (RPI) for calculating increases in public service pensions from April 2011. On Tuesday 25 October 2011 a joint legal challenge launched in the High Court by unions and other pensioners’ organisations. The Government is facing two challenges to the change.
The judicial review proceedings brought by Unite, Unison, PCS, NASUWT, FBU and POA, argue that the switch will erode the value of public sector pensions because the CPI, which excludes housing costs, is often lower than the RPI and therefore decreases the value of pensions over time. The argument is that this change unfairly confounds members’ legitimate expectations for RPI-based pension increases and
that "the imposed move was not permitted under social security legislation" and "reneges on assurances given by successive governments that RPI would apply".
A second group of unions including Prospect, the FDA, GMB, Police Federation, National Association of Retired Police Officers and the Civil Service Pensioners’ Alliance argue that the CPI is not a fair indicator of inflation for pensions uprating. Dai Hudd, Deputy General Secretary of Prospect said:
"The value of people`s pensions will be hit by up to 25% because of this change. That`s a cash cut of £15,000- £20,000 for the average civil service pensioner. Our judicial review is the only hope of blocking this move, which will save the government £6bn in 2014-15 alone...CPI excludes housing costs like rent, mortgage payments and council tax, which affect pensioners like everyone else. The CPI is calculated in a way that assumes that customers will switch to cheaper brands of goods rather than measuring the increase in their cost”.
Despite the CPI excluding the majority of housing costs, the Government’s suggestion is that this is not necessarily relevant on the basis that most pensioners own their home outright and that low-income families are subsidised separately through housing benefit.