High Court rules public sector pension change lawful

Investing and pensions

Updated on 02 December 2011 | 0 Comments

Unions have lost their challenge to Government changes to the way increases public sector pensions are calculated.

The High Court has ruled that the Government can change the way public sector pensions are indexed.

Trade unions had challenged the move to use the Consumer Prices Index (CPI) instead of the faster-rising Retail Prices Index (RPI).

The new measures have been applied from April. They mean that pensioners already receiving their pensions will get an increase of 3.1% as measured by CPI rather than 4.6% under RPI.

The change has caused outrage among trade unions. And the NASUWT union has already said it plans to appeal the High Court ruling.

According to Hargreaves Lansdown, then for a pensioner retiring at 65 with a £10,000 a year pension will lose out by around £46,600 over the duration of their retirement (assuming the Bank of England does eventually hit its CPI target of 2%). That's the equivalent of nearly 18% of the total payout.

The independent Hutton Report on public sector pensions estimates that the change will save the Government an estimated £1.8 billion a year by 2015-2016.

But that saving could in fact be greater. The Office for Budget Responsibility forecast that the difference between the measures could increase by 1.4% a year, rather than the 1.2% predicted in the Hutton Report. It said that the gap could be as high as 1.8% by 2016.

The Government says that the CPI is a better measure, as it doesn’t include prices such as council tax or mortgage interest payments.

But it has come under fire for still using the RPI to calculate rail fare price increases and student loan interest rates.

More: Get the best annuity rates | The five biggest pension mistakes

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