News flashes:

CPI versus RPI debate
Initially upon hearing of the HMG proposal to use the Consumer Price Index (CPI) as the marker governing annual pension inflation increases it was presumed to apply only to those pensions paid by HMG.

When it transpired as part of the “We Are All In This Together” Coalition philosophy that this proposal would also apply to pension schemes in the private sector, out of a sense of “Fairness”, ABAP felt that this was not well thought through. We continue to do so, as far from being “Fair “, it was not fair at all to many older pensioners in many of the private schemes.

The Retail Price Index (RPI) has been in use for many years by all schemes as a measure of Inflation. Clearly it is in any government’s interest to keep this figure as low as possible without it being completely debased. In practice under all governments the RPI was politically shaved by essentially what they could get away with, and CPI will be subject to exactly the same pressures.

This has meant that over, say, 15 years, under-calling the RPI (when compared to the real, effective rate of inflation), has reduced the purchasing power of long-time pensioners by some 20% just when their personal costs are tending to go up due to age.

The proposal to use the CPI for all schemes to ease the financial burden of pension schemes, on the face of it sounds very laudable, as the CPI tends to be a lower figure than the RPI by definition as it does not include mortgage interest. However, use of the lower CPI figure will worsen the loss of purchasing power of the older pensioner, and whether pensioners still have a mortgage is not relevant.

ABAP therefore does not support the substitution of RPI by CPI in any private pensions as it does not in fact produce “fairness”; for older members it increases the erosion of pension purchasing power.

In the case of BA Pensions, where Herculean efforts have been made to arrive at an achievable Recovery Plan, it is worth noting that this plan was constructed with RPI in mind as the index. Completion of this plan preceded the proposal for the national use of CPI in all schemes.

Therefore the Association supports the BA Pensions Recovery Plan, provided that adequate safeguards are in place, and sees no further disadvantage for pensioners, or further danger to the schemes, by continuing along RPI lines.

We shall be informing the Chancellor, the Pensions Regulator and the Department of Work & Pensions (both the Secretary of State Iain Duncan-Smith, MP, and the Minister for Pensions, Steve Webb MP) accordingly.

The Committee of ABAP
23 July 2010.

Pension deficit recover plan agreed with Trustees

Pensioners will have seen an announcement in the Press from British Airways regarding the Recovery Plan for BA Pensions. This is Good News, at a time when we need it.

Our Membership has been somewhat suspicious over the silence, and of the duration of the gestation of this Plan. ABAP has been continually relaying these anxieties to all the Pensioner Trustees.

The facts of the matter bear repetition:

• Clearly the Plan had to satisfy the BA Pensions Trustee Board, but first the schemes' respective deficits had to be accurately established before the deadline of 30 June 2010

• The Pensions Regulator has to be satisfied on all stages of the Plan in view of the extreme financial condition of the BA Schemes & British Airways

• British Airways itself, as the whole country is by now aware, has a yawning debt problem compounded by ongoing industrial action

• Iberia, Spanish Airlines, had always made the solution to the BA pension scheme deficit problem a vital condition of their long running merger with BA

• The Pensions Trustee Board with all these other pressures in play had to extract a payments schedule from BA that would see the survival of the schemes
  

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