Could court case boost your retirement?

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A court case being brought by the biggest public sector unions on Tuesday could improve pension payouts for all of us if it is successful.

So what is going on, and how can the public sector unions improve retirements for all of us?

The case

The six unions representing the public sector will take the government to the high court over its pension reforms. It is challenging the use of the CPI for the inflationary increase in public sector pensions, instead of the RPI. This was announced in the emergency budget of June last year, and came into law in April this year.

The RPI is traditionally around 1.2% higher than the CPI, so when the government switched the way it calculated pension increases, it made pensioners gradually poorer every year. In fact, it could mean pensioners lose as much as £2,500 every year, which over the course of a typical retirement could cut the value of the pension by as much as a quarter.

It's a massive and dramatic change that was introduced with very little fuss, because so few of us find it easy to get our heads around the concept of compounding (or the effect of a relatively small change over a relatively long period of time).

The argument

The unions claim that the change was introduced without consultation, and was designed to cut costs rather than on any basis of fairness. They will argue that the human rights act and social security legislation outlaws this sort of change (which affects pension benefits that have already been built up). They also say that it goes against a host of government promises that the RPI link would stay: they say that all negotiations over previous years were based on promises that the RPI link would stay, and therefore it is not right that this link should be arbitrarily withdrawn.

On a very straightforward basis, they are arguing that CPI doesn't reflect rising prices in the same way as RPI, and that the idea of linking to inflation is meaningless unless it actually keeps pace with the rising cost of living.

Chris Keates, the general secretary of NASUWT, one of the unions taking the action said: "The question the court is being asked to answer is whether it is just and fair to arbitrarily change the basis on which pensions are calculated, reducing their value by thousands of pounds."

Private sector benefits

This, so far, sounds like unions standing up for the right to keep public sector pensions generous, while the taxpayer continues to foot the bill.

However, in this case, the challenge may actually help those in company pensions too. In July 2010, George Osborne confirmed that the new calculations would apply to company pensions too, and a number of companies have already made the switch to CPI, in order to save money on their ever-growing pensions bill.

So if the unions are successful in challenging the rules for public sector pensions, it would mean private sector pensioners could take similar legal action. They may not need to, as the companies could make changes to their scheme in order to avoid the bad press of going to court.

Len McCluskey, general secretary of Unite, one of the unions involved, said: "Our legal challenge against the coalition government is hugely significant for workers in both the public and private sectors. Public sector workers face an opportunistic attack on their pensions by this Government, but many workers in the private sector have also been affected," he said.

So what do you think, will the unions be successful? Should they? Let us know in the comments.
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