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High Court rejects unions’ CPI pensions challenge

The High Court has rejected a claim by public sector unions that the Government’s decision to switch indexation for future pension increases from RPI to CPI was unlawful.

In the June 2010 Budget, Chancellor George Osborne (pictured) announced the decision to switch the measure for pension inflation to the consumer price index, which, on average, tends to be lower than the RPI.

The move, which took effect from April this year, has also been applied to some private sector schemes which do not have RPI-linked pension increases hard-wired into their rules.

Last month six public sector unions launched a judicial review challenging the decision.

The unions argued that the change was not permitted under social security legislation and “reneges on assurances given by successive Governments that RPI would apply”.

However, two of the three judges backed the Government, meaning the unions’ challenge was quashed. However, all three judges agreed with the unions’ claim that the decision to switch to CPI was motivated by deficit reduction.

A spokesperson for Thompsons Solicitors, which acted on behalf of the unions, says: “While the High Court’s split ruling is disappointing, the unions are pleased that their main argument, that the chancellor was motivated by deficit reduction when he made the switch, was accepted.

“It is encouraging that one judge agreed that this was illegal. We have instructions to lodge an appeal urgently on behalf of the unions.

“At a time when public sector employees are being forced to bear the burden of the financial crisis, the unions will not allow this unfair and, in our view, unlawful breach of the contracts of millions of workers to rest.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. I really hope that, if they do appeal, they are successful. It is obvious that the public sector workers are being asked to pay many times more than the private sector for the balls up of the bankers. They are being demonised by most of the press, as well as the government, and it seems that many of the public are falling for it.

    We should remember that the vast majority of public sector workers are nurses, firemen, dustment etc who do a good job. It is the minority that get paid too much for doing too little.

    As The Guardian said a few days ago “The Treasury accepts that the contribution increase is designed to help reduce the deficit, rather than improve the longterm viability of the pensions system. It has said it will raise £2.8bn from the policy. The money will not go directly into reducing the future costs of public sector pensions, but paying down the deficit. In that sense this is a political decision to make public sector pensions contribute more in this way to the deficit reduction programme. It’s fair to argue – as the unions are – that this is an additional tax on state employees.

  2. @ Patrick Schan

    And where do you think the money comes from to pay the public sector? Like so many others, you ignore the plight of the wealth-creating sector who have to foot the bill.

    You say “We should remember that the vast majority of public sector workers are nurses, firemen, dustment etc who do a good job. It is the minority that get paid too much for doing too little.”

    Does mean that you think the workers in the private sector don’t do a good job or don’t equally deserve a good pension? The fact is that this is about what can be afforded – not what is merited.

    Even if it was about merit – how can it be right for some workers to have to fund for others benefits that they cannot hope to afford for themselves. Nobody wants take pay or benefits cut – but when your broke you have to make economies and it is only right that everyone contributes to them.

  3. Whilst I agree that public sector (PS) workers are being asked to pay more and receive less, the fact is that they will still get a much, much better deal than if they were funding their own defined contribution (DC) arrangement.

    I doubt many would wish to leave the scheme following the changes and I do not believe that the argument that public sector pay is lower than the private sector holds much water anymore.

    I think that reporting the words ‘gold plated’ scheme alongside ‘dinner ladies’ pension is a bit of a red herring. SOME do get gold plated pensions, e.g. with accelerated accrual rates, meaning you can work for 30 years rather than 40 but still get a full CPI linked 2/3rds of final salary pension for life. (Wouldn’t we all like to potentially retire at 50/55 on 2/3rds of our final salary??)

    Perhaps there should be more focus on the schemes where existing members DO get these kind of unaffordable accrual rates?

    And why don’t all PS workers pay the same contribution rate and receive the same benefit?

    P.S. For the record, my wife is a teacher, so we will be negatively impacted by the measures too.

    Mark. South West.

  4. 90% of private sector final salary schemes are closed. Where you are lucky enough to be in one:
    – No increase on pre 1997 accrual
    – CPI up to 5% on accrual from 1997 – 2005
    – CPI up to 2.5% on accrual from 2005

    So while CPI is 5.2% a public sector worker will get this increase in full. A private sector worker would get nothing on part of their service, 5 on another part and only 2.5% on the final part. When CPI is high private sector workers will really lose out (assuming you are even in a FS scheme) compared to public sector workers

    So I don’t agree that public sector workers are being asked to pay more than private sector workers. When it comes to increases they still have a much better deal than the equivalent private sector worker and no caps to worry about.

    Mark – you assume that there still is a 2/3rds cap. This was true when all public sector schemes had a 40 year service cap. However most schemes removed the 40 year cap with the changes in April 2006 – so it is possible to get MORE than 2/3rds of final salary now in many schemes.

  5. Attila (but only for today) 2nd December 2011 at 1:29 pm

    @Patrick Schan – With average public setcor pay being higher than equivilent private sector pay, 6 months full pay, 6 months half pay, for sick benefits, 20 days holidays plus statutory days per year fully paid, paid maternity and paternity pay, career breaks, flexitime, overtime and allowances etc plus final salary pension, stop whining because they need to pay a bit more in. Not to mention the odd day off for xmas shopping (oh sorry I meant sick day that just happens every December). – I would have directed Clareksons comments towards the unions (however I did email the one show saying it was the best comment I have ever heard on their show). I would sack the strikers and replace them with those who would know a good thing when they see it. Be they home grown or foreign, it doesnt matter to me. Private sector has had to take a hit on pensions for years and a lot have had final salary replaced by money purchase pensions. The cheaper option so GET OFF YOUR HIGH HORSE. They should be grateful that A) they have a job, B) they have good benefits and C) they will have a sivler plated pension instead of gold. If they dont like it then leave, try life in the private sector and see how they get on (for the 6 months they will probably last before realising how well off they were and want back).

  6. @Kevin

    In answer to your points:

    1: The money to pay public sector pensions comes from all tax payers, including the public sector tax payers and from their own pension contributions on top of that.
    2: No it does not mean that people in the private sector (like self employed me) do not do a good job and I don’t see how you could twist what I said to mean that. Private sector workers deserve a good pension if they are willing to pay for it (and many are not). However,share prices have battered private pensions (whose fault is that) and will cutting public sector pensions mean better pensions for the private sector? No. The public sector workers didn’t get rid of final salary company schemes.
    Is it the fault of the public sector that the banks trashed the world economy and share prices have gone sideways for the last decade? No.

    And when it comes to the question of merit and what you percieve as affordability – If you default on your mortgage can you say the your lender that ” I know you merit my repaying you, because I promised I would, but it is not about merit; it is about what I can afford”. Of course not, and you tell me what the difference is.

    How come all this bitterness never arose when the private sector was doing well? Not a peep from anyone was there?

    Most IFAs probably has some public sector clients. If so why don’t they tell them how they feel about them. and tell them how greedy think they are because you think they have something you don’t.
    Surely you won’t be hypocritical enough to keep taking their money because it suits you?

    An ethical solution would be to put new public sector employees into a cheaper scheme and they can take it or leave it in the way that the rest of us have a choice when we join an employer.

    Then you don’t have to stitch up innocent people.

    Don’t forget I am in the private sector the same as you are. I just like to think I am just cynical enough not to believe every single lie (some of) the media and politicians spread for their own nefarious reasons.

  7. @Atilla

    I would refer you to my answer to Kevin. By the way, what are you only for today?

    I imagine you thought Jeremy Clarkson’s joke about killing prositutes was good as well.

  8. And when it comes to the question of merit and what you percieve as affordability – If you default on your mortgage can you say the your lender that ” I know you merit my repaying you, because I promised I would, but it is not about merit; it is about what I can afford”. Of course not, and you tell me what the difference is.

    ———-

    The difference is that the mortage is a contract and it will be defined for a set term – 25 years in most cases. A legal debt has been established for said term.

    The accrual of future pension benefits, not yet earned, or increases on said amonuts is not a contract. There isn’t even a promise of future accrual. Accrual also ceases if the individual leaves emlpoyment or is mde redundant or decides to stop paying contributions. There isn’t a right to something not yet earned. If an individual leaves emlpoyment or is made redundant that doesn’t get them out of the mortgage obligation.

    Ultimately the High court has come down the side of the goverment.

    “How come all this bitterness never arose when the private sector was doing well? Not a peep from anyone was there?”

    There have been a huge number of articles on this subject over the years that i can recall even prior to the credit crunch. The recent problems have simply brought it all to a head. E.g. in the Civil Service no more new entrants to into a final salary scheme – they get a career average scheem called Nuvos instead.

  9. They are lucky they can get together and fund an action, look at IFAs, like a herd of cats going in all directions!

    MEOOWWW

    p.s. How do you make a cat bark? (Clarkson type Joke)

  10. The change to CPI on rights already accrued is an act that would be illegal under the Pensions Act 1995 in any private sector scheme. Once accrued, rights in private sector schemes are inviolable but not if you’re in the public sector.

    In my case, having recently been made redundant from the public sector, because of this change my preserved pension at retirement will now be 21% lower at retirement than previously, even before the lower uprating in payment in considered.

    This of course applies to pension rights I had accrued before I was made redundant and before this change was made. I have no opportunity to go back and pay additional contributions for those years, nor to decide I wanted to work for another employer.

  11. Ashwin Kumar | 2 Dec 2011 10:23 pm

    The change to CPI on rights already accrued is an act that would be illegal under the Pensions Act 1995

    —————-

    The Pensions Act 1995 text HAS been changed to CPI increases!!

    I honestly do not know where public sector people get their information from. If they would stop and look at what has been going on in the private sector they might understand how good they have it.

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