The Chancellor of the exchequer announced in the Budget statement on 22 June that, with some exceptions, consumer prices rather than retail prices will be the basis for uprating most benefits and public sector pensions.

The Government believe the CPI provides a more appropriate measure of pension recipients' inflation experiences and is also consistent with the measure of inflation used by the Bank of England. We believe, therefore, it is right to use the same index in determining increases for all occupational pensions and payments made by the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS).

Consequently we intend to use the CPI as the basis for determining the percentage increase in the general level of prices for the 12 months ending 30 September 2010 when preparing the order required under paragraph 2(1) of schedule 3 to the Pension Schemes Act 1993 in relation to revaluation and indexation of pension rights in defined benefit pension schemes, and the order made under section 109 of that Act in relation to increases in guaranteed minimum pensions paid by contracted-out defined benefit schemes in respect of pensionable service between 1988 and 1997; and to amend legislation to enable CPI to be used for relevant increases in respect of the PPF and FAS.

Using CPI will mean making some small changes to primary legislation to ensure we can apply it fully in every circumstance. We will bring these before Parliament at the earliest opportunity.