"The switch from RPI to CPI indexation for pensions in payment may seem an obscure and relatively unimportant issue, but this supreme court case shows the change isn’t insubstantial as it would also have a wider impact on society. Barnardo’s argue the use of RPI in uprating pensions in payment diminish funds available for its charitable projects. However, the judgment holds fast that rules for the indexation of pension payments are hard baked into the scheme with no leeway for amendment.
"According to its 2017 accounts, Barnardo’s pension scheme has a reasonable pension deficit.* In 2017 the charity had to pay £18 million towards its pension schemes, according to its annual report. About 60% of that went to its now closed defined benefit scheme with the remainder funding the current defined contribution scheme. To meet its funding shortfall (which the accounts show is in excess of £100m) Barnardo’s will contribute an estimated £10.7m a year until 2037. Allowing the trustees to adopt CPI for pension payment increases would reduce the funding shortfall by between £36m to £74m. However, in some respects it would have been robbing Peter to pay Paul as changing the inflation mechanism is a retrospective pay cut for scheme members since the principle behind DB pensions is that it is deferred pay.
"The government had also proposed allowing a shift in calculation as part of their review of DB schemes but had opted against it, perhaps fearing the backlash of millions of DB pension holders."
*The funding assumptions the Trustees use are different to those used in the accounts so they may have a different figure for the funding shortfall, but will agree that £10.7m a year needs to be paid till 2037.