The Pensions Arguments of Xmas Past - uprating and price indices

A little over a year ago, ahead of Xmas 2010, I was pleased to see UNISON encouraging members to lobby Members of Parliament against the (then imminent) shift from uprating pensions in payment in line with the Retail Price Index (RPI) to the Consumer Price Index (CPI). 135 MPs have, over the last year, signed the Early Day Motion in opposition to this change.

This particular unanticipated assault on the living standards of occupational pensioners had come about almost six months before in George Osborne’s unnecessary “Emergency Budget” of June 2010. 

The admirable Civil Service Pensioners’ Association (CSPA) had sounded the alarm on this point almost immediately, highlighting the dishonesty of the Coalition parties. It is worth repeating the following from their website;

The index-linking arrangements for public sector pensions stem from the Pension (Increase) Act 1971. The law is complicated but it has had the effect of ensuring that each April public sector pensions have been increased in line with the Retail Prices Index, as recorded for the previous September, so as to maintain their purchasing power. The RPI link has been applied since 1972, employees have been led to believe by pension scheme literature that the RPI link would be maintained and many have made financial choices based on that understanding. Following much media speculation about the future of the current arrangements, we sought clarification from the three main political parties about their intentions and we received the following assurances.

At a meeting held on 30 March 2010, Angela Eagle said on behalf of the Labour Party "Following the agreement for change reached with the unions in 2005, we are satisfied that public sector pensions are affordable, sustainable and fair. We have no plans to change the current index-linking arrangements."

In a letter dated 12 April 2010, Steve Webb said on behalf of the Liberal Democrats "We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept. Therefore we would not make any changes to pension rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected."

In a letter dated 27 April 2010, Philip Hammond said on behalf of the Conservatives "Indexation of pensions in payment is an established part of pensions legislation. The Conservative Party has no plans to change the current index-linking of public sector pensions in payment. We agree with the view that the right to indexation of pensions already accrued is part of the accrued pension rights and those rights will be protected. Our proposed £50,000 cap on public sector pension rights accrued was always intended to be a real-terms cap and therefore will be subject to indexation to reflect inflation. It would make no sense to express a long-term cap on pensions in nominal terms."

The TUC joined the CSPA in opposition to this change a fortnight after it was made. Even then though the presentation of the TUC opposition was revealing, Brendan Barber was quoted as saying that “On the day that the Institute of Directors is due to launch a further attack on public sector pensions, this TUC research shows that public sector pensioners have already been hit hard in the budget,” and “Significant changes were negotiated in public sector pensions just a few years ago and the Budget has cut benefits further.” (I have added emphasis).

With hindsight, the TUC position, which was not at that time to take any action about the issue (though subsequently of course the trade union movement has coalesced around two related legal challenges now on their way to the Court of Appeal), faced in two directions even then. On the one hand the dramatic impact upon the living standards of pensioners was highlighted. On the other hand (in anticipation, since realised, of the coming assault upon our pension schemes), the cost savings arising from the change were also hinted at.

It is therefore noteworthy that none of the “Heads of Agreement” in relation to any of the four main public service pension schemes have anything to say about the basis of uprating of pensions. This is instead left to the courts, which might overturn such a decision for some procedural flaw, such as a lack of appropriate consultation, or the taking of a decision for irrelevant reasons, but cannot indefinitely prevent a Government acting as it wishes within the law. To achieve this requires a political campaign utilising all the tools we can put our hands on (including industrial action).

Although the basis of indexation of pensions post-retirement is not the easiest topic I have ever had to explain at a trade union meeting, as our members (and the public) have grasped the sleight of hand whereby the Government have taken some 15% of the lifetime value of our pensions (giving the lie to the “protection of accrued benefits”), opposition has grown. It’s not just the 135 MPs who have signed up in opposition, but the more than 100,000 signatures on the e-petition which should now see a debate on the subject in Parliament.

UNISON National Delegate Conference 2011 called upon our National Executive Council (NEC) to “mount a substantial campaign amongst members against the change from RPI to CPI.” We have lobbied members to get their MPs to express opposition, and we have urged members to sign the e-petition, but perhaps the most significant part of the campaign which we have waged has been through the firm support of the entire Union for the action taken, at the behest of our Service Groups, by the large majority of our members on 30 November. This was in line with another element of the same Conference decision that the NEC ought to “build unity across UNISON and with other unions to oppose current and proposed detrimental changes to pension rights and, acting within UNISON rules and the law, to support service groups and sectors seeking to co-ordinate official national industrial action in defence of pensions.”

As we put it in the generic “Vote YES” leaflet in the run up to N30; “Changes recently imposed mean your pension is already worth less and you will receive less when you retire. We say enough is enough.” Our pension calculators also drew members’ attention to the implications of the change in uprating our pensions (questions 16 and 17 of the NHS calculator and 14 and 15 of the LGPS calculator). Members I spoke to certainly understood our opposition to the change from RPI to CPI to uprate pensions in payment as part of what we were striking against.

Critically, because the shift from RPI to CPI applies in exactly the same way to all our pension schemes (and to many more beside), a demand around this shift would be one thing which could give us the unity of the trade unions, against the loss of which the Communist Party of Britain rightly warned in yesterday’s Morning Star.

Negotiations around such details as accrual and revaluation rates, as well as employee contributions, must necessarily take place on a scheme by scheme basis because they are scheme specific. This has been a practical difficulty in sustaining trade union unity and has facilitated the Government’s tactic of “divide and rule”.

A unifying demand that the Government reverse the shift from RPI to CPI for uprating pensions would not only unite all public sector workers, but would be in the interests of private sector occupational pensioners and members of other pension schemes in the public and private sectors.

This is not some impossible demand. Although the Office of National Statistics (ONS) denied a Guardian report that they had bowed to pressure from the Royal Statistical Society (RSS) (who have been investigating this topic and has set up a working group) to review the use of CPI for these purposes, the CSPA report that just such a review is taking place (“The Office of National Statistics is working to improve both the RPI and the CPI measures but their work is not expected to be complete until 2013... …The Royal Society of Statisticians is contributing to the ONS work.”).

It is therefore a perfectly credible and reasonable demand that the Government should revert to use of the RPI to uprate pensions (and benefits) whilst the ONS works to develop a better index than either the RPI or the CPI.

I hope that one of the questions which UNISON’s Service Groups will be able to consider on 10 January is whether or not to send our negotiators back to see Danny Alexander and Francis Maude to ask them to reverse George Osborne’s dishonest and unacceptable change in the basis of uprating pensions in payment, and whether or not to prepare for further united industrial action to support them in this demand. As another UNISON NEC member said, before last Xmas, UNISON “will look to take every opportunity to try to reverse” the change to CPI. Now might be the right time to do what we pledged last Xmas.