Private sector pensions could also be indexed to CPI. In July 2010 the Government announced that from April 2011, private sector Occupational Pension schemes, the Pension Protection Fund and the Financial Assistance Scheme could use CPI to calculate increases in payments to pensioners and for revaluations of deferred entitlement.
Some schemes have RPI written in to scheme rules. Some schemes’ rules allow payments and revaluations to be indexed to the ‘statutory minimum'. However, between 60% to 80% of schemes have rules which require indexation by a minimum of RPI.
One option would have been for the Government to give schemes whose rules require indexation by RPI, powers to override or modify scheme rules. However, due to concerns regarding legal barriers and a desire to help maintain confidence in schemes, the Government has announced that they will not allow override or modification powers.
Changes to defined benefit indexation have saved FTSE100 schemes more than £15bn, consultants Towers Watson estimates. It said many of the country's largest companies are preparing to record "record windfall gains" as a result of the RPI to CPI switch. The government's policy change has transferred wealth from pension scheme members to sponsoring employers, who are busy quantifying these windfalls on their balance sheets."
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