The appropriateness (or otherwise...) of CPI
ABAP, via Mike Post, has taken expert advice from Mark M Courtney, D.Phil. (Oxon), formerly Deputy Director and Head of Economics, Regulatory Impact Unit, Cabinet Office, some time Senior Lecturer in Economics, Rhodes University. Dr Courtney has written a paper which covers the background and history of the CPI: what its purpose was and how it was developed; the details of the CPI‟s construction and how it performs as a price index in practice; He then draws conclusions about CPI's appropriateness for cost-of-living adjustments. His report on the use of CPI for cost of living adjustments has been sent to the Trustees, and can be downloaded by following this link.
We await the announcement of the date at which the trustees are to go to court or a reply from Mr Spencer giving the date and location of the trustee meeting at which the decision to go to court was reversed. Meanwhile there is the serious matter of the underpayment of our pensions since April 2011 because the trustees used CPI rather than RPI to uprate them.
The decision to pay CPI increases to APS pensioners was made in March 2011. The APS trustees consulted their legal counsel in early April 2011, after the March decision had been taken. At the Ascot Members’ and Pensioners’ meetings on 11 July 2011 (“the Ascot meetings”), the APS Scheme Lawyer said: “When there was talk about ‘appropriateness’, what counsel said was that this was a very hard judgment for the trustees to make because you need expert advice and he [counsel] said that, ‘It’s appropriate to go to court to determine whether it’s appropriate or not.’ So, at that point, two judicial review cases came up, where it’s being tested in the courts. So, in order to save you money…”
At the Ascot meetings the APS Scheme Lawyer also said, “The second application to court would be in respect of whether CPI is an appropriate measure or not and the trustees are awaiting the outcome of a judicial review to see what questions were asked and what the result of the judicial review is before making that decision.”
It is clear that before they took the decision in March 2011 to pay CPI increases from April 2011, the APS trustees had neither taken expert advice nor gone to court to assess whether or not the CPI was an appropriate index to increase APS pensions.
All pensioners receiving pensions from APS Part 6 can expect to have lost different amounts of money following the trustees’ decision to use CPI rather than RPI to increase pensions in April. The amount of money that will be lost this year (from April 2011 to April 2012) will be equal to 1.5% of the inflation-protected portion of your pension that you were paid from April 2010 to April 2011.
For example, if the inflation-protected part of your pension was £8,000 per annum, the amount you will lose this year will be £8,000 X 1.5% or £120. The amount you have lost from April to July is a little under four months worth because pension increases are made on or around the 11th of April. So the amount of money the £8,000 p.a. inflation protected pensioner will have lost to date is a little under four months’ worth of £120 or £40. These amounts seem small but, compounded over years, they make a huge difference to your lifetime pension income.
You can scale up or scale down. A pensioner who is receiving £40,000 per annum of inflation-protected pension will have lost around 5 x £40 or £200 to the end of July. The exact amount of money that you have lost is hard to calculate, but BA Pensions has the ability to calculate precisely how much you have lost so far and how much you will lose this year as the result of the use of CPI.
The sums involved are the sort of amounts that can be claimed as the result of a complaint to the Pensions Ombudsman or under the small claims legislation. The Ombudsman service is free but can take some time. The Small Claims Court incurs a small fee when the claim is lodged - £25 for up to £300 claimed online – but you will have at least until 1 October to decide whether to use the Small Claims route and incur the expense. The vast majority of claims will be for less than £300. However, all claims must be started through the Internal Dispute Resolution Procedure(“IDRP”), as set out below. A decision can be taken later which avenue each individual should pursue.
All complaints to the trustees must be in writing as set out on the BA Pensions website at http://www.mybapension.com/aps/home/our_service_standards.php
This is a two stage procedure. Do not be fobbed off if your claim is rejected at the first stage. You are entitled to appeal if you are not satisfied.
At the bottom of this article is a template letter which is self-explanatory. Please customise the letter by including your own address and your name and staff number. Also can you please add or include your own special circumstances. For example, if you are a widow or a widower
who was promised RPI increases when your partner died, please include that information as part of your complaint. Do this even if you have already sent in a complaint and already received a response from BA Pensions. If you are confident that you knowhow much you have lost, can I suggest that you include in the Remedy section of the complaint letter the following paragraph, using your own figures:
“I estimate that in the year April 2011 to April 2012 I will lose approximately £xxxxx unless the trustees agree to pay the pension due to me by reference to RPI rather than CPI. To date, since April 2011, I have lost approximately £cccccc. These estimates are subject to confirmation of the accuracy of the amounts as calculated by BA Pensions.”
When you have written your letters of complaint to “The APS Trustees”, do not email them but please send them through the post to Whitelocke House. I have sent my own today by recorded delivery. Please also send me an email to firstname.lastname@example.org confirming that you have sent your letter. Please do not send me a copy of the letter that you have sent to the APS Trustees if it includes an estimate of your own personal losses, I do not wish to know your personal information.
Mike Post 4/7/2011
Link to page containing template letter in various formats