DB Pension and legal index linking

k6chris

Is it legal for a DB pension to increase annually 'with inflation'?? I see various comments on CETV threads that index linking is a major benefit of DB (vs DC) but I think my plan has many caveats and that this might be limited to say the least. What is the legal situation?

hugheskevi

Is it legal for a DB pension to increase annually 'with inflation'??

Yes

I think my plan has many caveats and that this might be limited to say the least. What is the legal situation?

For Defined Benefit pensions, statutory minimum indexation depends on when the pension was accrued. Pension accrued before 1997 does not have to increase by anything. Pension accrued between 1997-2005 has to increase by prices, capped at 5%. Pension accrued after 2005 has to increase by prices capped at 2.5%

If the Trust deed specifies more than statutory minimum then that is what the member is entitled to.

k6chris

Thanks, just done the 'math' and nearly half of my DB pension was accrued pre 1997, with the Company saying that after 2020 there will be no increases... There is a comment that annual increases in GMP will rise by up to 3%, but now idea how of my pension is GMP?? Is this a fixed amount or a percentage??

Thanks (again!)

greenglide

Is your pension in payment?

Inflation linking on my pension is:-

Will my pension increase in payment?

Yes, your pension will be increased each year to help offset the effects of inflation:
• Your GMP relating to service from 6 April 1988 will be increased with inflation up to 3% each year.
• Your Plan pension in excess of your GMP will increase at a minimum of 3% per annum for that part accrued prior to 6 April 1997. The portion accrued between 6 April 1997 and 5 April 2006 will increase in line with the lower of the rise in the Retail Prices Index (RPI) and 5% per annum. The portion accrued from 6 April 2006 will increase in line with the lower of the RPI and 2.5% per annum.
The State no longer pays any increases to GMP after 6 April 2016.

This is, I believe, pretty much the legal minimum for a contracted out scheme.

Note that if you reach SPa after 5th April 2016 you will receive no increase in the GMP with State Pension so that part of the pension will not increase.

The GMP is determined when you reach SPa and is then increased as above.

xylophone

Pension accrued before 1997 does not have to increase by anything.

While a scheme has no obligation to inflation link pre 88 GMP in payment, it does have an obligation to inflation link post 88 GMP in payment up to a maximum of 3% CPI.

It may also index link the excess according to the rules of the scheme/ statutory requirements.

PensionTech

OK, statutory increases in payment:

GMP accrued prior to 6 April 1988: Nil
GMP accrued between 6 April 1988 and 5 April 1997: CPI up to 3%
Excess over GMP accrued prior to 6 April 1997: Nil
Pension accrued between 6 April 1997 and 5 April 2005: CPI up to 5%
Pension accrued after 5 April 2005: CPI up to 2.5%

GMP goes into payment at age 60 for females, 65 for males (not State Pension Age).

Some schemes may provide for higher increases than the statutory minimum.

Basically what hugheskevi said but with GMP and more detail about the exact measure of inflation.

There is also statutory revaluation in deferment:

All GMP: Fixed rate between 4-8.5% per annum depending on leaving or in line with national earnings
Pre-97 excess: CPI (formerly RPI) up to 5% unless date of leaving is before 1991 (in which case only part or none of the pension may be revalued, plus other complications if leaving before 1985)
1997-2009 pension: CPI (formerly RPI) up to 5%
Pension accrued after 2009: CPI (formerly RPI) up to 2.5%.

AlanP_2

How do you work out the value of the two GMP elements for a deferred pension where only the legal increases will be applied once in payment i.e. no increases on any pre-88 GMP or excess over GMP?

My statements / CETV estimates talk about GMP values as they were when I deferred back in 1995 but can't see the same "split" of the Age 60 /65 estimates of what it will pay me?

What I am trying to do is calculate the overall increase level I can expect by applying the relevant increase percentage to Post-88 / Pre-97 GMP element.

xylophone

You have a statement for each scheme showing your pre 88 GMP, post 88 GMP and excess at date of leaving?

Are your GMPs in your deferred pensions increasing by Full Rate or Fixed Rate?

https://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

https://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372354/CA14_Termination_of_Contracted-out_Employment_Manual.pdf

You need to know your scheme rules.

Some schemes will revalue a deferred pension by more than the statutory minimum.

Have a look at post 24 - this may be similar to your (NRD age 60) case https://forums.moneysavingexpert.com/discussion/4736856

If NRD is 65 the situation is somewhat simpler - the total pension can be split into revalued pre 88 GMP/post GMP and excess - going forward the scheme would have no obligation to index link pre 88 GMP but would index post 88 GMP up to 3% and the balance by scheme rules.

https://forums.moneysavingexpert.com/discussion/5439551 post 96

You need to check your personal situation with the administrators of your schemes.