Research published earlier today reveals that adoption of the new RPIJ index for calculating inflationary pension increases could reduce the costs of defined benefit pensions by £20bn in the UK.*
Commenting on the issue, John Broome Saunders, Actuarial Director at consulting firm BROADSTONE said:
"Scheme trustees need to stop brushing this issue under the carpet. The old RPI index is officially regarded as statistical bunkum, and yet many trustees persist in using it to calculate pension increases. If trustees cannot convince themselves that they have a very good reason to continue to use this old index, they should adopt the new RPIJ index as soon as possible. Failure to do this leaves trustees wide open to future claims of negligence from employers, who will be able to argue that trustees paid out pension increases to which members were not reasonably entitled. Since the defunct index is almost always higher than the new index, employers will be able to argue that such overpayments have resulted in additional funding costs, which they may then claim directly from trustees. With liabilities of £20bn at stake, and potential unlimited personal liability for negligent trustees, this is an issue that cannot be ignored."
* LCP's analysis of the impact of adopting RPIJ for calculating pension increases can be found by clicking here.
John Broome Saunders