The UK government has won a High Court challenge by three major pension funds over the legality of a planned change to the calculation of inflation that they contend could leave millions of pensioners worse off.
Trustees of the BT, Ford and Marks and Spencer pension schemes had brought a judicial review claim against the government over plans by the UK Statistics Authority to reformulate the retail price index inflation measure from 2030 and replace it with CPIH, a version of the Consumer Prices Index that includes housing costs and is seen as a better measure of inflation.
The pension funds, which together represent nearly 450,000 members and £83bn in assets, had argued the planned change was unlawful and that it failed to properly take into account the impact on millions of pensioners with defined benefit pensions who would be worse off because their annual increases would switch from RPI to the typically lower CPIH.
However on Thursday, the High Court ruled in favour of the UK government and rejected arguments that the government or UK Statistics Authority had overstepped their authority in making the changes.
The ruling is significant because 10.5mn people in the UK have private sector final salary pensions, most of which are currently linked to RPI. The pension fund trustees had argued the longer term impact could be worse for women, because statistically they live longer than men.
In the judicial review challenge, the pension trustees had claimed that the UK Statistics Authority and the chancellor failed to take into account the impact of the decision on holders of RPI- index linked gilts and bonds and on retirees entitled to index-linked pensions. The pension funds also claimed that the government failed to consult properly with the public about the decision.
However Mr Justice David Holgate rejected these arguments. “Parliament did not find it necessary to confer or spell out an express power to change the RPI. Given the history and nature of the RPI as an index measuring consumer price inflation, it is obviously implicit in the duty . . . to compile and maintain that index that the UKSA is able to change it,” he ruled.
Ian Diamond, chief executive of the UK Statistics Authority and national statistician, welcomed the ruling and said the proposed changes can legally and practically be made by the authority in February 2030.
He said: “At a time of rising prices, it has never been more important to have accurate and trusted measures of inflation. We have been clear for a number of years that the Retail Prices Index is a very poor measure of inflation, at times greatly overestimating and at other times underestimating changes in consumer prices.”
The Treasury said: “We welcome today’s judgment, and are committed to the publication of accurate economic data.”
A spokesperson for the pension schemes said they were “disappointed” with the ruling.
“Many investors, including pension funds, bought index-linked gilts in good faith and now face losses of £90 to £100 billion” said the spokesperson. “This decision will leave millions of pensioners in defined benefit schemes with RPI linked benefits poorer through no fault of their own and facing substantial decreases in their year-on-year income. Women will be particularly impacted since they live longer and retire earlier.”
Additional reporting by Josephine Cumbo
