Ford claims it is powerless to avoid switching UK pension payments from an inflation linkage to the Retail Price Index (RPI) over to the Consumer Price Index (CPI). With 40,000 members of its fund affected by the change, the firm could now face strike action

Unite spokesman Ciaran Naidoo has told Pension Funds Insider that a meeting last Wednesday with Ford UK's HR Director failed to produce a satisfying outcome for the union. He said that a proposal has been made to address the concerns of working members, but nothing was on the table to compensate 30,000 retired members of the car maker's pension fund, who stand to see a more modest annual increase in their pension payments from April when CPI is adopted.

That proved not to be enough to placate the union and the estimated 200 pensioners who protested outside the meeting at Ford's UK headquarters in Brentwood, Essex last Wednesday. Naidoo said that Unite asked the company to return to them with an improved offer, which they hope to hear in another meeting held in the week beginning 4 April.

Should there be no further change of stance, the union insists it is ready to issue a ballot for strike action in protest at what it says is a "callous and immoral attack on workers and pensioners".

The CPI increase in April will be set at 3.1% as opposed to a 4.6% rise if the company were to continue using RPI, leaving a former Ford worker who currently draws a £10,000 annual pension £150 worse off over the following 12 months. This discrepancy is likely to increase in following years due to changes in the Office of National Statistics' methodology for calculating the two inflation indices.

Ford told the Union last Wednesday that they had no choice but to complete the switch after recent government recommendations, with spokesman Dan Jones telling Pension Funds Insider: "The Ford Pension Funds are required to pay pension increases in line with provisions that cross-refer to the relevant legislation. This means that the pension increase set by the Government under the order made in December applies to eligible Ford Pension Fund members."

Naidoo claims however that "the company do not need to switch to CPI", which evokes predictions of confusion and a 'small-print lottery' after the Department for Work and Pensions set out its proposal on the inflation switch in December 2010. Experts warned at the time that a failure to provide over-riding legislation to force all private sector schemes to use RPI would send trustees scrambling for legal advice, with schemes that had explicitly mentioned RPI in their rules likely to have to remain using that index.

Richard Butcher, managing director of Pitmans Trustees told Pension Funds Insider that both Ford and Unite might have a claim to be in the right. Butcher said that while companies are entitled to cite scheme rules referring to a base of the inflation calculations with statute to justify a move to RPI, they can also use the opportunity to change those rules to explicitly mention RPI – a stance likely to upset unions.

Butcher continued: "The confusion is added to by two other facts. Different tranches of benefits may reference different increase rates making it very confusing for members and trustees, while previous member communications are often vague or contradictory on inflation linkage."

He added that while he believes the government's intentions in launching the CPI switch were sound, implementation is proving sloppy and "the result for the private sector is a dog's dinner that will cost a fortune to clean up".

Adam Walker, a partner at Barnett Waddingham, made the point that trustees would be under clear financial pressure to move to CPI, saying: "It is the Government which has changed the index, not Ford – and they could change it again in due course.  Giving pensioners more inflation-proofing than they are strictly entitled to would in effect be a benefit improvement, which trustees of schemes with significant funding deficits might have to work hard to justify – even though pensioners may have had expectations of RPI increases, and may argue that schemes had been funding for and planning to provide RPI increases."

dbillingham@wilmington.co.uk

First published 23.03.2011