Government to link private sector schemes to CPI

The Government is set to index private sector pension increases to the CPI in a move that could cut £100bn from scheme liabilities.

Pension increases for private sector schemes are currently indexed in line with the Retail Prices Index (RPI).

Pensions minister Steve Webb said this follows the decision to link public sector pension increases to the CPI, announced in the Budget last month.

In a statement, Webb said: "The Government believes the CPI provides a more appropriate measure of pension recipients' inflation experiences and is also consistent with the measure of inflation used by the Bank of England.

"We believe, therefore, it is right to use the same index in determining increases for all occupational pensions and payments made by the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS)."

In order to implement the policy, Webb confirmed "small changes" to legislation would need to be brought before parliament "at the earliest opportunity".

Accountancy firm KPMG said the decision to link to CPI  could slash up to £100bn from private sector liabilities.

Pensions partner Mike Smedley said: "This looks like a sensible change which will align public and private sector pensions and generally reduce the burden on pension schemes.

"But we urge the Government to make the legislation apply equally to all schemes and avoid a smallprint lottery for schemes and their members depending on technicalities and details of the scheme's legal documents."

CBI head of pensions Neil Carberry added: "Statutory indexation is the biggest single regulatory cost borne by final salary schemes. That makes getting it right important. As CPI is a more accurate reflector of inflation for pensioners than RPI, we welcome this announcement.

"We hope that the overnment will also table overriding legislation, however, to ensure that schemes whose rules currently prevent them from taking advantage of this change can do so."

NAPF chief executive Joanne Segars said the move would give trustees and fund managers more flexibility.

She added: "This gives final salary pensions some breathing space, and it will make it a little easier for firms to keep schemes open.

"The detail needs to be right so that the change can be applied smoothly and simply."