Business

Public sector pensions: Inflation move challenged

Public sector workers on strike over pensions march through central London on June 30, 2011 in London
Image caption The pension dispute has been ongoing for some months and has included strike action

Unions representing public sector workers are appealing against a legal decision about how pensions are protected against inflation.

Future annual pension increases for millions of public sector pensioners will be cut by a policy change.

The government will benchmark these rises to the Consumer Prices Index (CPI) measure of inflation rather than the Retail Prices Index (RPI).

In December, the High Court dismissed a legal challenge from the unions.

They had argued that the switch, which has already been put in place by a number of private sector firms, was unlawful in the public sector.

The policy will save the government billions of pounds in the coming years and is a major area of disagreement within the public sector pensions dispute.

At the time of December's judgement, the unions were given permission by the judges to appeal to the Court of Appeal on some of the issues raised.

The appeal case is estimated to last for two days in the Court of Appeal.

Pension shift

CPI and RPI are measures of inflation - or the cost of living - based on the prices of baskets of goods and services. The RPI basket includes mortgage interest payments and some other housing costs, and is generally higher owing to the formula used to calculate it.

The use of CPI for inflation-proofing policy was first applied in April this year.

It saw pensioners in schemes covering civil servants, teachers, NHS employees, local government and others, receiving an increase of 3.1% instead of 4.6%.

New projections published at the time of the Autumn Statement showed the government is now assuming the gap between the measures will widen from 1.2 to 1.4 percentage points a year.

If someone retired on an annual pension of £10,000 a year - a typical figure for a teacher - then over 20 years the uprating of their pensions by 2% (the Bank of England's CPI target) would see them accrue total pension payments of £245,500.

If a 3.4% RPI figure was used instead - because this would be 1.4 percentage points higher - the pensioner in question would receive £284,923. That's a difference of £39,423 over 20 years.

'Challenge'

Two groups, mainly consisting of unions, launched the initial legal action against the change. The Fire Brigades Union, NASUWT, Prison Officers Association, Public and Commercial Services union, Unison and Unite make up one group, while the other consists of Prospect, the FDA, GMB, Police Federation, National Association of Retired Police Officers and the Civil Service Pensioners' Alliance.

Media playback is unsupported on your device
Media captionUnions are appealing the government's decision on pension changes

The judges agreed to allow the National Union of Teachers, Association of Principal Fire Officers and National Federation of Occupational Pensioners to join the challenge.

Six unions are taking the case to the Court of Appeal.

Brian Strutton, national officer of the GMB, said: "GMB consider that the High Court was wrong in fact and in law regarding this change to long-standing employment contracts, which cuts pensions in payment by 15% and more.

"That is the reason GMB, with the other unions, is mounting this robust legal challenge to that decision."

Related Internet links

The BBC is not responsible for the content of external Internet sites