Government changes mean that public sector pension schemes, including the NHS scheme, now use inflation calculations based on the Consumer Price Index (CPI) instead of the Retail Prices Index (RPI).
The inflation figure calculated from the CPI is lower than that from RPI, which does not include items such as council tax and mortgage payments. This will mean that, in the coming years, NHS pensions will increase by less per year than it has in previous years.
A judicial review challenged the switch to CPI-based calculation, which was announced in the June 2010 budget. The review was launched by six unions: the Fire Brigades' Union, teachers' union NASUWT, Prison Officers Association, Public and Commercial Services union, UNISON and Unite.
The unions argued that the change was a deficit reduction measure and therefore unlawful under social security legislation.
The High Court ruled against the unions, in favour of the government.
All three High Court judges agreed with the unions that deficit reduction was the motivation for the switch. But two of them said the Secretary of State for Work and Pensions was within his rights to take into account public finances.
October’s inflation figures put CPI at 5% and RPI at 5.4%. Unions warned that this would mean that the loss to existing public sector pensions would be around 15%.
Dave Prentis, general secretary of UNISON, said: ‘The loss to existing public sector pensions and many in the private sector had been estimated at around 15%.
‘According to the Chancellor, the switch [to CPI] was taken to take ‘Britain out of the financial danger zone’ but the switch will put millions of workers and pensioners into the ‘financial danger zone’.’
BMA figures have shown that the change to CPI could have a dramatic effect on doctors' pensions.
A newly retired doctor, retiring at the age of 65 with an initial pension of £35,000, would be worse off under CPI uprating by a total of £2,000 by the age of 70, the BMA said. By the age of 85 the doctor would be £124,500 worse off.