deflation

markinsouthsea

Hi


Having just read about the impact deflation may have on the economy it got me thinking about pensions.


I have a deferred pension that gets an annual uplift based on government figures I think last year it went up by 2.7%.


If there is deflation will this mean that the pension amount payable on retirement will go down? My deferred pension payment has pretty much doubled since I left that employment in 1996.

princeofpounds

That depends on the terms of the scheme. Many of them do have a lower limit of 0%, but I have no idea if yours has.

hugheskevi

It depends.

If it is a public service pension subject to revaluation under the Pension Increase Act 1971, then it cannot go down.

If it is a private sector pension subject to revaluation orders then it cannot be reduced in value from what it was when you left the scheme, but the amount by which it increases can be reduced.

For example, compare Revaluation Order 2008 with Revaluation Order 2009. You will see that the 2009 Order has lower increases than the 2008 Order. From a member perspective, this would have led to their pension going down on a year-to-year basis if the scheme strictly follows the Revaluation Order. In theory, there has not been a reduction, as from a legal perspective the increase is only applied once, covering the whole period and not separate increases each year, so for a pension not yet commenced no revaluation has been applied and so none can be lost (that is my understanding, I'm not a pension lawyer).

edit: I should add for completeness, that as princeofpounds says above, what happens depends on the scheme rules. The Revaluation Orders set out the statutory minimum, but schemes can increase by more than that if they wish.

markinsouthsea

Yes it is subject to those revaluation orders, I have just looked and see that on my annual statement in 2010 it did indeed go down around 1.5 % from the previous years valuation. It is with friends provident their former now closed staff retirement benefit scheme. So I guess the same could happen this year, I have 7 years to go before It starts to pay at 60.

saver861

Public Sector or at least some schemes in Public Sector cannot go below 0%.

However, some schemes say something like annual increases will be 2% or inflation rate - whichever is lower.

Technically that then might exclude deflation or have a lower rate of 0% - on the other hand, I'm guessing it might well go below 0%.