BT Pension Scheme Indexation

BT Pension Scheme Indexation

BTPS to increase in line with CPI rather than RPI

We wrote to you on 4 November to advise you that, following a Government announcement that the Consumer Prices Index (CPI) would be used as their measure for inflation, BT had announced that this would have a direct impact on the indexation arrangements for some parts of the BT Pension Scheme (BTPS). From now on Section A and B pensions in payment and deferred pensions, as well Section C deferred pensions, would increase in line with the CPI rather than the Retail Prices Index (RPI). This is highly likely to be detrimental to BTPS members as the CPI consistently results in a lower rate of inflation than the RPI.

At that time the position in relation to Section C pensions in payment was not clear. The rules relating to increases in Section C pensions in payment are complex, but they do refer explicitly to the Retail Prices Index. BT and the BTPS Trustee were taking independent legal advice on this issue.

Since the announcement the Union has met with BT to express our strong opposition to the Company announcement and to seek clarity on Section C. We argued that there should be some amelioration of the impact of the change as it affects Section A/B pensions. After all, less than two years ago members agreed in a ballot to major changes to the BTPS which mean that members now pay more for a lower level of future pension. It is not fair now to have a further detrimental change forced onto scheme members by the Government without some compensatory improvements elsewhere. We will continue to make this case to BT and we are also taking further legal advice on the whole issue.

At the meeting BT did confirm that BTPS Section C pensions in payment will continue to be increased in line with RPI, capped at a maximum increase of 5%. In other words, the way these Section C pensions will be increased in future will not change.

Last week the Government also announced that it does not currently intend to introduce a legislative override to force all pension schemes to use CPI in place of RPI.

This announcement has understandably caused some confusion. Members have approached the Union to ask if this means that the original BT decision to switch from RPI to CPI would now be rescinded. Unfortunately, this is not the case. All the Government has said that it would not force schemes in the private sector which have rules explicitly referring to RPI indexation to switch to CPI indexation. The BTPS Section A and B rules and Section C deferred pension rules do not refer explicitly to RPI. The rules refer instead to the Pensions (Increases) Act. It is the way the Government will operate this Act in future, by using CPI instead of RPI, which affects the BTPS. So, the announcement last week changes nothing in relation to the original BT decision.

The announcement does however have a bearing on Section C pensions in payment. The rules here do refer explicitly to RPI. Had the Government's announcement last week gone the other way, then Section C pensions in payment could have been affected. CPI could have become the index to be used for determining increases for this section as well as for the rest of the BTPS.

However, the Government is conducting a consultation on this issue - so while for now RPI will continue to be the index used for Section C pension increases, it is possible that the Government will change its mind following its consultations. We do know, for instance, that the CBI has argued in the past in favour of a legislative override. The Union will be responding to this consultation, arguing against a legislative override.

The union is also conducting a lobbying campaign against the original government decision, announced in July, to switch from CPI to RPI. CPI is not an adequate index. It consistently under-states UK inflation because it does not measure most housing costs and because it is calculated in a different way (it is a geometric as opposed to an arithmetical mean) specifically designed to ensure that it comes out with a lower figure. Despite the government's arguments to the effect that CPI is a 'more appropriate' measure of pensioner inflation, there is a substantial body of evidence that if anything even RPI understates inflation as it affects pensioners. CPI certainly does.

If you would like to help with our lobbying, you can, by writing to your member of parliament on this issue. We attach a briefing on the left hand side on this issue which would help you to make the arguments to your MP, or indeed to your local political party if you are a member.