On this page you will find information about the change made from RPI to CPI, which is not directly relevant to either the APS or NAPS anti-CPI campaigns. Some of the items here are no longer relevant (strictly speaking), but they provide background information which may be useful to members.

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 has been sent to the Trustees, and can be downloaded by following this link.

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Newsflash 1st May 2011 - TSB pensioners caught too...
Barry Ingham of the Lloyds TSB Retired Staff Association has had the following letter published in the Sunday Times today:

"Ministers don't understand pensions

It is clear that the government has no understanding of the complexity of different pensions deeds.

In Lloyds Banking Group, the two main pension schemes are for former Lloyds staff and former TSB staff. Because of specific reference to increases based on the retail prices index (RPI), the Lloyds pensions will rise by 4.6%. TSB pensioners will receive only the consumer prices index (CPI) increase of 3.1% because of the trust deed reference to future rises being based on the governments current measure of inflation.

As the state pension is being increased by the RPI figure of 4.6%, it is not unreasonable to conclude that the Lloyds Banking Group chose to ignore fairness and equity and boost its balance sheet at our expense. Does it seriously believe that the rise in the cost of living differs between the two groups of pensioners?

I applaud those trustees of the British Airways pensions board who have resigned rather than support this nonsense.

Barry Ingham Lloyds TSB Retired Staff Association, North West Region"



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It's not just us...
You might be forgiven for thinking that it's just pensioners who are seriously concerned about the switch from RPI to CPI. In fact the use of CPI as a measure of household inflation is causing widespread concern. The following is an extract taken from a letter from Jill Leyland, Vice President, Royal Statistical Society and Chair, RSS National Statistics Working Party to Sir Michael Scholar, Chair of the UK Statistics Authority.

"There are good arguments for the CPI as a macroeconomic indicator (particularly once some indicator of owner occupier costs has been included) but, as you know,
we do not feel that it currently serves the purpose of being a sufficiently good measure of price inflation as experienced by households to be used in uprating pensions and benefits or for use in wage negotiations, thus not fully meeting Principle 1 of the Code of Practice. Use in business contracts is another aspect that should also be considered. Having now studied the CPAC's proposals for including owner occupier housing costs, we agree with the point made by John Amos, of the Civil Service Pensioners' Alliance, in his recent letter to Jil Matheson, that these will not help this issue as the measures proposed have been designed with macroeconomic needs in mind rather than as a measure of costs experienced by householders".

The italics are mine.

Ms. Leyland's letter, dated 22nd February, makes a number of clear well-argued points.
This link will take you to the Royal Statistical Society web page, where it can be downloaded in full.

You can see that various items of correspondence are published on that page, not all on the pensions topic. However, one item of equal interest is the letter from RSS President, David Hand to Sir Michael Scholar, dated 25th August last year. This is worth a read because it sets out in plain English the history of CPI, and it's drawbacks.


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What difference will using CPI as an inflation index make to my BA pension?
Both RPI and CPI are complex, especially when one digs beneath the headline level. What matters to pensioners is the difference that a switch to CPI will make. Read the following from Mike Smedley, a pensions partner at KPMG: "While these sound like small amounts, they add up over the life of a pensioner...pensioners who are fortunate enough to retain RPI indexation in the private sector will see larger pension increases - after 20 years of retirement 0.6% per annum in extra increases would equate to a 13% higher pension...Pensioners whose pensions are linked to CPI in future - including all public sector pensions - will benefit from the higher CPI measure, but will see the gap between CPI and RPI linkage increase - a 1% shortfall each year will compound to a reduction of more than 20% after 20 years."

Read the complete article at Professional Pensions by clicking on this
link.

There is also a CPI "FAQ" brief put together by one of our members, slanted towards APS, but relevant to all.
Click here to read it.

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Government Consultation on the impact of CPI as a measure of price increases - the ABAP response
As we announced on this page in December, the Government has issued a consultation paper on "The impact of using CPI as the measure of price increases on private sector occupational pension schemes". ABAP has considered and submitted a response, which you can read by following this link.

Although this is the official ABAP response, we urge individuals to submit their own. The government has managed to create a considerable amount of confusion and uncertainty with announcements since last summer, and this is a real opportunity to let them know how you feel about the BA position. This
link will take you to the government document.

The deadline for responses to be taken into account is 2nd March 2011.

ABAP urges all members to respond.

The Committee of ABAP 9th February 2011

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New statistics "prove CPI is unfair for pensioners"

14/09/2010. The General Secretary of the National Federation of Occupational Pensioners (NFOP) has said that newly-released statistics prove that the Government’s decision to change pension increases from the RPI to CPI is grossly unfair. This link will take you to an article in Mature Times, on the subject of the fairness (or otherwise!) of what the Government is proposing.


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CPI versus RPI debate
Initially upon hearing of the HMG proposal to use the Consumer Price Index (CPI) as the marker governing annual pension inflation increases it was presumed to apply only to those pensions paid by HMG.

When it transpired as part of the “We Are All In This Together” Coalition philosophy that this proposal would also apply to pension schemes in the private sector, out of a sense of “Fairness”, ABAP felt that this was not well thought through. We continue to do so, as far from being “Fair “, it was not fair at all to many older pensioners in many of the private schemes.

The Retail Price Index (RPI) has been in use for many years by all schemes as a measure of Inflation. Clearly it is in any government’s interest to keep this figure as low as possible without it being completely debased. In practice under all governments the RPI was politically shaved by essentially what they could get away with, and CPI will be subject to exactly the same pressures.

This has meant that over, say, 15 years, under-calling the RPI (when compared to the real, effective rate of inflation), has reduced the purchasing power of long-time pensioners by some 20% just when their personal costs are tending to go up due to age.

The proposal to use the CPI for all schemes to ease the financial burden of pension schemes, on the face of it sounds very laudable, as the CPI tends to be a lower figure than the RPI by definition as it does not include mortgage interest. However, use of the lower CPI figure will worsen the loss of purchasing power of the older pensioner, and whether pensioners still have a mortgage is not relevant.

ABAP therefore does not support the substitution of RPI by CPI in any private pensions as it does not in fact produce “fairness”; for older members it increases the erosion of pension purchasing power.

In the case of BA Pensions, where Herculean efforts have been made to arrive at an achievable Recovery Plan, it is worth noting that this plan was constructed with RPI in mind as the index. Completion of this plan preceded the proposal for the national use of CPI in all schemes.

Therefore the Association supports the BA Pensions Recovery Plan, provided that adequate safeguards are in place, and sees no further disadvantage for pensioners, or further danger to the schemes, by continuing along RPI lines.

We shall be informing the Chancellor, the Pensions Regulator and the Department of Work & Pensions (both the Secretary of State Iain Duncan-Smith, MP, and the Minister for Pensions, Steve Webb MP) accordingly.


The Committee of ABAP
23 July 2010.