Pensioner members will recall that on the 25th November 2020, HM Treasury and the UK Statistics Authority published their response to the consultation on the reform of the Retail Price Index (RPI). The so-called reform, if implemented, could result in millions of retirees seeing significant cuts in their pensions.
What Is RPI?
The RPI is the oldest measure of consumer prices in the UK and is widely used across the economy. The first UK price index, the “Cost of Living Index”, was published in 1914 by the then Ministry of Labour. The RPI was established in 1956 and designated as the official UK inflation index. The RPI remained the official index until 2013 when it was replaced by the Consumer Price Index (CPI) but RPI continued to be published and used.
For some Lloyds pension scheme members, pension payments are increased each year in line with the RPI. In fact, 64% of defined benefit pension schemes use RPI to calculate member benefits. The Government is planning to do away with the RPI from February 2030 and replace it with a newer measure of inflation called CPIH, which is the Consumer Price Index plus housing costs. This new inflation measure results in a figure lower than RPI, often by as much as 1%.
Who Is Affected?
So, what does the change actually mean? Barnett Waddingham, an actuarial consultancy, has calculated that someone currently aged 50, with an RPI-linked pension paying £10,000 annually from age 60, would have previously expected to receive £500,000 if they lived to the average age of 90. If the Government gets its way, that pension would be reduced to about £425,000. The Pensions Policy Institute said that: “the average reduction in lifetime income from an individual’s RPI-linked pension post retirement could be 4% for men and 5% for women”.
Government Refuses To Change Policy
Thousands of BTU members wrote to their MPs, using a letter produced by the union, rejecting the Government’s decision. In that letter members said:
“This is an important issue which is going to affect many of your constituents who are members of defined benefit pension schemes. And I am asking you to either reject the advice of the UKSA and maintain RPI beyond 2030 or put in place mitigating measures to ensure that DB pension benefits are not reduced. To do nothing is simply unacceptable.”
The responses MPs got from Government Ministers on behalf of their constituents were dismissive.
Legal Action Against Decision
Trustees of the BT, Ford and Marks and Spencer pension schemes have a launched a judicial review of the Government’s decision to replace the retail price index (RPI) with the consumer price index including housing costs (CPIH).
The argument is that the UK Statistical Authority didn’t have the authority to reformulate RPI and the Government failed to take account of the affect such a decision would have on legacy users of RPI.
The union is looking at the possibility of producing an ‘amicus curiae’ brief for the High Court proceedings. This is a document submitted to the Court by someone who is not party to the actual proceedings but is interested in the outcome – literally a friend of the Court. This brief would give us the opportunity to bring to the attention of the Court important issues and arguments that the other parties had not themselves raised.
We wrote to the Harry Baines, Chairman of Lloyds Banking Group Pension Trustees Limited asking it (the board of trustees?) to join the legal action on behalf of the tens of thousands of pension scheme members whose benefits are going to be reduced from 2030 onwards.
After a month we had received no response from Mr. Baines so asked members to write to him instead. Eventually, we got a response which simply said that: “We are aware of the legal challenge” and “will continue to monitor developments in this case”.
Not the kind of activism you would expect from a Trustee Board which is under an obligation to protect the benefits of pension scheme members. At the very least the Trustee should join the action.
We will keep informed of development in the case.
Free Trade Agreements
Affinity has been invited by the Government to join the Trade Union Advisory Group (TUAG) looking at free trade agreements.
The recent Australia Free Trade Agreement is the first free trade deal that’s been negotiated by the Government from scratch.
All of the other agreements done so far have been rollover agreements of those formerly in place through Britain’s membership of the EU.
As the Department for International Trade (DIT) gears up for negotiations with countries in Latin America and the USA, it set up the TUAG to provide advice to the DIT on protecting and advancing the interests of workers as part of the UK’s trade policy.
The Group discusses DIT’s broader long-term trade policy objectives and allows for informed discussions on these priorities. The Group gives trade union leaders a direct audience with DIT to highlight the priorities of their members.
The Group, which meets monthly, advises the DIT but does not set government policy. It is not a decision-making body.
£40m In Compensation
We are about to begin the next phase of the Union’s GMP campaign and that will begin to roll out in the next few weeks. Just to recap, last November the High Court ruled that Lloyds are legally responsible for equalising the guaranteed minimum pensions (GMPs) for those men and women who transferred out of one of the defined benefit pension schemes.
The key points from the judgement are:
- The Trustee of the Lloyds pension schemes owes a duty to a transferring member to pay a statutory cash equivalent transfer value (CETV) which was correctly calculated, reflecting the member’s right to equalised guaranteed minimum pension benefits.
- Trustees in all pension schemes are on the hook to pay a top-up to the receiving scheme together with interest. Any claim by a transferring member is not time barred, either under the Scheme’s rules or under the relevant legislation.
Who Will Benefit From This Judgement?
The best estimate is that 30,000 members have transferred out of the Lloyds schemes since 1990. We believe that more than half of those 30,000 members will be affected by unequal guaranteed minimum pensions. And half of those, will need top-up payments. Of the sample of 270 transfers looked at by Willis Towers Watson, a leading firm of actuarial advisers, for the High Court case, 147 needed to be topped-up. The average top-up payment was £3,900, with the largest payment being £23,000.
It’s difficult to get exact data but according to the Pensions Regulator between 2018/19 approximately 210,000 individuals transferred out of defined benefit schemes. The total value of those transfers is estimated at approximately £34bn. In 2017/18 there were 100,000 transfers with a total value of £14.3bn. Most of those individuals who transferred out of defined benefit pension schemes will now benefit from the outcome of our High Court legal victory.
One of the issues discussed in the Court case was the accuracy of the data held by the trustee (the Board overseeing the pension scheme appointed by the Bank) on those members who have transferred out of one of the pension schemes. In many cases, those records may have disappeared altogether. In the next few weeks every member who we believe may be affected by the judgement will receive a letter asking them to complete pro-forma covering the details of their transfer out of the pension scheme.
As we’ve said in all our Newsletters on GMP the processes required to determine top-up payments for thousands of members going back to 1990 are not going to be straightforward. Getting compensation, for those entitled to it, is going to be a marathon and not a sprint and members need to be patient.
The Trustee is still dealing with the first part of our GMP victory and many pensioner members will have received compensation payments already.
Once again, we will keep members of informed of developments.
This Is My Life – By David Badham
It’s not quite an account of an entire life, given that David was waiting for his second COVID jab when the book finished, but it’s a book about an ordinary life. That’s not to be dismissive of the book, far from it. I enjoyed it very much.
It’s just that one of the greatest novels of the 20th Century, in fact any century, ‘Stoner’ by John Williams is a novel about an ordinary life with all its trials and tribulations. And there are lots of trials and tribulations in David’s book. Some of it personal and tragic but there is a deep optimism and zest for life, which in these extraordinary times we all need.
David’s career in Lloyds Bank didn’t start off as he expected. On his first day at Lloyds Beaconsfield Oldtown branch, having left home in Llandogo, a small village in the Wye Valley, he presented himself for work, in a suit paid for by his parents, only to find he was at the wrong branch. Fortunately for David, that mistake didn’t blight his career in Lloyds.
He moved around Oxford and Aylesbury a lot working his way up the managerial ladder at various branches. In fact, it was at Aylesbury branch that he met his future wife Pamela, whom David married in 1975. David and Pamela had three girls over the next few years. During later part of his career, branch banking was increasingly becoming automated, with branch closures and the bank’s relentless focus on costs. Given what’s happening today, some will think that not a lot has changed over the years.
David became a Customer Services Manager at Regional Head Office, eventually moving to the Head office in Bristol. And there he stayed until he retired aged 54, very young by today’s standards. But that wasn’t the end, just the beginning of another chapter in David’s life. He did lots of jobs over the years ending up working for Aylesbury Vale District Council.
He eventually retired, properly, aged 72, some 18 years after leaving the bank. That didn’t stop him, and he became fully involved in table tennis as Secretary for The Aylesbury League.
A passion which had followed him throughout his life. We leave David and Pam waiting to get their second vaccine jab.
‘This is my Life – growing up in the modern era’ by David Badham is available from Amazon.
David’s second book will be reviewed in the next edition of Pensioners’ Advance.