The Occupational Pensions (Revaluation) Order 2011 (SI 2011/2867) was published today and comes into force on 1 January 2012 - unusually there was no prior consultation on the figures this year. The Order specifies the percentage by which deferred benefits coming into payment (at NPA) under a final salary scheme during the calendar year 2012 must be revalued. This depends on how many completed periods of 365 days have elapsed since the individual left pensionable service. The figures are as follows:

As last year, the Secretary of State considers the Consumer Prices Index (CPI) to be the most appropriate measure of inflation. This is not immediately obvious, however, since the September figures for both CPI and the Retail Prices Index (RPI) exceeded 5% and so the cap has applied.

Note that in the case of a contracted-out scheme, this revaluation does not apply to any GMP element of benefits accrued to 5.4.97. GMPs are separately revalued to State Pension Age, by either a fixed rate or in line with Section 148 (formerly s. 21) Orders. The latter are officially known as Revaluation of Earnings Factors Orders and should not be confused with Revaluation Orders as above.

Judicial Review: move to CPI lawful

On 25 October 2011, six trade unions were granted permission for a judicial review of the Government's decision to up-rate public sector pensions using the Consumer Prices Index (CPI) instead of the faster-rising Retail Prices Index (RPI).

With the Office for Budget Responsibility forecasting that the long-run gap between CPI and RPI will increase to around 1.4% pa (cf. 1.1% predicted in March this year), this is a hot issue at present, because of the implied reduction in expected pension values. The impact is not confined to public sector pensions: it also affects many private sector schemes whose rules do not explicitly require RPI-linking.

The unions' legal challenge in the High Court has failed today, although the unions have been given leave to appeal on some of the issues.

The review centred around four questions:

1. Did the Secretary of State have the power to adopt CPI?

The much-amended Section 150 of the Social Security Administration Act 1992 confers on the Secretary of State for Work and Pensions a power to review certain sums

"in order to determine whether they have retained their value in relation to the general level of prices obtaining in Great Britain estimated in such manner as the Secretary of State thinks fit."

The claimants argued that use of the geometric mean in CPI calculation meant any comparison is not simply between prices but also incorporates consumer reaction to inflation. The Court disagreed on the grounds CPI has become a well established method of measuring relative price increases.

2. Did the Secretary err in law in having regard to economic considerations?

The claimants suggested that the decision to select CPI was in fact down to economic considerations and the desire to make savings, rather than because it is the most appropriate measure, as statute dictates. This was accepted by all three judges, although only Mr Justice McCombe agreed with the unions that it was unlawful.

3. Was there a breach of legitimate expectation?

The unions argued that an expectation had been created that RPI would endure in perpetuity as the method for uprating pension benefits. Again, the Court dismissed this claim as there had been no clear, unambiguous and unqualified representation to this effect. Any obligation to consult unions had been met between June 2010 and March 2011.

4. Was there a breach of the public sector sex equality duty?

The unions suggested there had been. The Court disagreed. Whilst the DWP did not perform a public sector equality impact assessment, the Treasury did and this was deemed adequate by the Court.

The unions believe the Court's judgement to be faulty and will almost certainly appeal, not least because this announcement comes 24 hours after public sector pensions deal negotiations reopened between the Government and trade unions.

The judgement is not immediately available* on the web, although a summary prepared by the lawyers for the unions has been published by the Civil Service Pensioners Alliance.