CPI pension switch challenge opens

The Government was accused in the High Court today of illegally changing the way annual pension increases are calculated for public sector workers.

Scores of angry pension fund members gathered under union banners outside the Royal Courts of Justice in London to protest as trade unions launched a mass challenge to the decision to use the consumer price index (CPI), instead of the traditionally higher retail price index (RPI), to take account of rises in the cost of living.

Union leaders say the switch could cost pensioners tens of thousands of pounds.

In court Lord Justice Elias, sitting with Mr Justice McCombe and Mr Justice Sales, said the judges themselves - as civil servants - were also affected by the changes.

Lord Justice Elias asked whether any party objected to them presiding over the three-day application for judicial review. There were no objections.

The switch, which came into effect in April, was announced by Conservative Chancellor George Osborne in the June 2010 budget.

Unions say that because the CPI is around 1.2% lower on average than the RPI, the loss to existing public sector pensioners will be around 15% - with the change already affecting staff paying into career average schemes.

The unions are protesting that the changes were introduced without consultation or negotiation, as a deficit reduction measure.

Today Michael Beloff QC told the judges a major Government policy was under challenge.

Mr Beloff and fellow QC Nigel Giffin are representing tens of thousands of public sector workers belonging to a variety of pension schemes, including those for police, teachers, firefighters, NHS staff and the civil service.

Mr Beloff said the challenge was to whether current legislation allowed the Work and Pensions Secretary, Iain Duncan Smith, and the Treasury - as custodians of the public purse - to switch to the CPI.

Arguing that that it did not, Mr Beloff said: "The consequences of that change, if valid and effective, is to diminish what would otherwise be a pension expectation and entitlement of those whose interests we represent and is obviously an issue of considerable public importance."

Mr Beloff accused the Government of unlawfully using the switch to CPI to make budget savings.

He said the CPI had been adopted as a measure of change in the general level of prices for the purposes of the 1992 Social Security Administration Act.

The Work and Pensions Secretary had considered it more appropriate than the RPI, arguing it better reflected the experience of consumers as it assumed they would substitute one product for another as prices rose.

This was known as "the formula effect", said Mr Beloff.

But the formula effect was inconsistent with the correct statutory test "which unambiguously requires the (Government) to measure changes in the general level of prices rather than consumer behaviour in response to such changes".

Mr Beloff argued the Government's aim of using the CPI to make budget savings was "a purpose contrary to the policy and objects of the 1992 Act".

The Secretary of State was under a legal duty to review whether pension benefits had retained their value, and it was the "general level of prices - not something else" that had to be estimated, said Mr Beloff.

Mr Giffin is also arguing that a substantial reason for switching to CPI was for the impermissible purpose of reducing expenditure on pensions and other benefits - in breach of a "legitimate expectation" of employees and their unions that pensions would be adjusted in line with RPI.

In addition Mr Giffin contends that a change from RPI to CPI to uprate benefits already accrued breaches Article 1 of the 1st Protocol to the European Convention on Human Rights.

He also argues the changes were flawed by misdirection and a failure to take account of relevant considerations.

PA