Pension scheme trustees powerless against new inflation target

The Trades Union Congress (TUC) has claimed pension trustees will be powerless to protect schemes from linking to the Consumer Price Index (CPI).

The government's decision to re link private sector pensions to the CPI will not automatically apply to schemes that have already agreed RPI-linked increases.

But the TUC said it feared employers will put pressure on trustees to re-negotiate pensions. ‘The ball is in the employer’s court,’ said TUC campaign manager Nigel Stanley. ‘If the employer refuses to fund the scheme to RPI [Retail Price Index] levels then the trustees will have to change it.’

The RPI link was introduced in the 1995 Pensions Act. Increases were capped at 5%, which was lowered to 2.5% in 2005.

While the default requirement will now be the CPI, schemes need majority support from the trustee board to change the link.

Stanley said the TUC had campaigned for a minimum 50:50 split between voluntary member trustees and externally-hired professionals, to ensure employees' representation.

‘We’ve always argued that half the trustees should be member nominated. Member-nominated trustees may still think there is a case for switching to CPI, but the employer certainly has more leverage on independent trustees,’ said Stanley.