The Court of Appeal has today rejected the appeal brought by PCS, POA, FBU, NASUWT, UNITE and UNISON in relation to the switch in indexation from RPI to CPI for public sector pensions.

The switch in the measure used to increase public sector pensions annually also impacts on private sector schemes which do not have the RPI indexation written into their rules.

The unions mounted the legal challenge on behalf of millions of public sector workers after the switch – effective from next month – was announced by chancellor George Osborne in his 2010 budget without consultation or negotiation. He claimed it was the more appropriate measure. The unions have always contended it was a deficit reduction measure.

CPI is around 1.2% lower on average than RPI, but is estimated to widen to 1.4% according to the Office of Budget Responsibility, meaning the loss to existing public sector pensioners will be over 15% in the future.

The judicial review started in the High Court last October. The unions argued that the imposed move was not permitted under social security legislation, and that it reneged on assurances given by successive governments that RPI would apply.

While all three High Court judges agreed with the unions that deficit reduction was the motivation for the switch, two of them said the Secretary of State for Work and Pensions was within his rights to take into account public finances.

Now the Court of Appeal has ruled that the government was entitled to take into account the national economic situation when deciding to adopt CPI from this year. The Court also ruled that, even if the national economic situation had been discounted, the government would still have adopted CPI on the basis of the advice it had received.

The unions will now be considering their next steps.