The Supreme Court has ruled against Barnardo’s in an ongoing legal battle to decide how the charity must measure inflation with regards to its pension payments.
Court judges yesterday ruled the charity would be required to calculate the rate of inflation for its pension payments from the retail price index (RPI), rather than by the consumer price index, which is typically lower.
The trustees of the Barnardo's pension scheme - a closed defined benefit scheme with a deficit of £137.7m - previously argued they should be able to interpret a clause in their pension scheme trust deed in a way that would allow them to use the Consumer Prices Index (CPI) as their measure of inflation instead.
In February 2017, the Court of Appeal ruled with a 2:1 majority that the definition of RPI in the Barnardo’s scheme documents maintains that the company cannot change the index “unless and until the RPI is replaced”, but shortly after the Supreme Court gave the charity permission to appeal this ruling.
However, the Supreme Court upheld the decisions of both the High Court and the Court of Appeal in ruling that the RPI must be the index used, unless the RPI had been discontinued as an officially published index and replaced, as specified in their trust deed.
Barnardo’s, the scheme's sponsoring employer, sees CPI as a more appropriate measure of inflation, as it believed it would enable a reduction of the scheme’s deficit.
But representatives of the members of the scheme were concerned that the adoption of the CPI as the index would, over time, reduce the benefits which they receive from the scheme.
The ruling provides clarity to private pension schemes across the UK that there is no discretion for their trustees to use any other method of inflation if it is specified in their trust deed.
Speaking on the ruling, Hogan Lovells counsel, Nicola Rondel said: "This is the end of the line for Barnardo's. Around £100m of pension scheme liabilities rest on a definition that was given very little thought when rules were drafted back in the day.
"The ONS appears to be adopting a cautious approach to reforming RPI and it seems unlikely that it will be replaced as the official index any time soon."