Long-term effect of inflation on Armed Forces Pension Scheme 75/15

pattojones

Good morning.

I know very little about my pension. Strange I know, but it is difficult to actually speak to someone whilst serving due to the way it is administered and I doubt it will improve much after I have left.

I am due to 'retire' compulsorily in Apr 16. I will receive an immediate pension given the particulars of my Service from the age of 40 years. I appreciate this is far from the 'norm' for most people outside the Forces and that I am in many respects lucky, albeit that I have spent a great deal of time in some less than pleasant places to 'earn' that pension. I digress.

As per title, I would be interested to learn of the effect of 15 years uplift by inflation (CPI/RPI?)? I appreciate this is difficult to predict but could someone provide examples of what happened in their case? I wonder if this would be better in the Armed Forces pages?

RichandJ

pattojones wrote: »

Good morning.

I know very little about my pension. Strange I know, but it is difficult to actually speak to someone whilst serving due to the way it is administered and I doubt it will improve much after I have left.

I am due to 'retire' compulsorily in Apr 16. I will receive an immediate pension given the particulars of my Service from the age of 40 years. I appreciate this is far from the 'norm' for most people outside the Forces and that I am in many respects lucky, albeit that I have spent a great deal of time in some less than pleasant places to 'earn' that pension. I digress.

As per title, I would be interested to learn of the effect of 15 years uplift by inflation (CPI/RPI?)? I appreciate this is difficult to predict but could someone provide examples of what happened in their case? I wonder if this would be better in the Armed Forces pages?

Probably will be better off in AF page, but if inflation averaged 2.5% over the 15 years then, compounded, that would be an increase of just under 45%.

pattojones

TVM. Could a mod please move this?

molerat

As a guide I retired with redundancy in 1994 after 22 years / age 40 with a pension of £5887 pa (before taking the full commutation) and in 2009 it paid at £9052 pa. Of course the annual increases are slightly lower now due to CPI rather than RPI being used.

Deneb

molerat wrote: »

As a guide I retired with redundancy in 1994 after 22 years / age 40 with a pension of £5887 pa (before taking the full commutation) and in 2009 it paid at £9052 pa. Of course the annual increases are slightly lower now due to CPI rather than RPI being used.

Do you feel that the pension has kept its purchasing power over that time, or have the RPI/CPI increases not kept up with the real rate of inflation?

jamesd

All inflation-linked increases will tend to do two things:

1. Do a somewhat reasonable job of keeping up with general inflation, noting that CPI excludes housing costs that will be relevant to younger retirees, while RPI includes that.

2. Fail to keep up with expected living standards because wage inflation has a long term trend of increasing by inflation plus 1%. For this reason those who have an inflation-linked pension tend over time to drift downwards in terms of percentage of average annual income until they might fall below 60% and be said to be living in poverty even if their pending power and lifestyle haven't changed at all.

To deal with the second issue you'd need to have some investments that can grow to provide the extra money that it would take to keep up with changes in general spending levels.