It has been proposed by the Government that private sector (as well as public sector) pension schemes should be allowed to use the Consumer Prices Index (CPI) as opposed to the Retail Prices Index (RPI) as the measure of price inflation when applying increases to pensions in payment and when revaluing deferred benefits. The Government has stated that it believes this change will make pension benefits more affordable for employers.
Many commentators have pointed out that CPI is generally likely to be lower than RPI - for September 2010 the annual CPI rate was 3.1%, whereas RPI was 4.6%.
However, what these changes will mean for individual pension schemes will depend on how these proposals are ultimately translated into law. This uncertainty has largely been caused by the fact that different pension scheme rules will have reflected the requirement to apply increases or revaluation in different ways. Indeed, in Reed Smith's experience, no two pension schemes will have provisions worded in precisely the same way.
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