DB pension - Understanding Inflation Links

marlot

My DB pension has several revaluation rates. They are described as 'in deferment' and 'in escalation'.


I have a NRA of 65, but am planning to take this pension at 55. Am I right in thinking that I switch from the 'in deferment' to 'in escalation' revaluation rates then?


In deferment is statutory up to 5%. In escalation is RPI up to 3.5%. I'm assuming that statutory means CPI - is that right?


Thanks!

Marcon

'Revaluation' is the term used for increasing a pension before it comes into payment. Once it is in payment, the term is just 'increase'.

Some schemes had RPI 'hard wired' into their rules and can't switch to CPI.

You need to check with your scheme.

xylophone

The pension is revalued in deferment and escalated in payment
Do you have a GMP?

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

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

Is there an actuarial reduction for taking your pension before Scheme NRA?

You need to read your scheme booklet very carefully.

See this thread on the Barclays DB Scheme when an individual has a GMP and retires early.

https://forums.moneysavingexpert.com/discussion/5865725/gmp-and-deferred-pension

However, schemes differ.

marlot

xylophone wrote: »

...Do you have a GMP?...

Thanks Xylophone. I don't believe I have a GMP on this pension as it covers service at an employer from 2003 to 2013. Or have I misunderstood?

I do have a pension from a different employer, covering service from 1986 to 1997 - I've already decided to leave that pension to its NRA as it has much less attractive early payment terms.

xylophone

No GMP on post 1997 DB pensions.

Shedman

marlot wrote: »

Thanks Xylophone. I don't believe I have a GMP on this pension as it covers service at an employer from 2003 to 2013. Or have I misunderstood?

I do have a pension from a different employer, covering service from 1986 to 1997 - I've already decided to leave that pension to its NRA as it has much less attractive early payment terms.

I think that's probably a wise decision as there will be an element (possibly quite sizeable) of GMP in that one, assuming that the employer contracted out, and that GMP element will be being increased at a fixed rate of between 6.25% and 7.0% p.a. to age 65 (male) or 60 (female), dependant on whether you left post or pre 5 April in 1997.

If am understanding it correctly once in payment, even before GMP date, the post 88 bit only escalates at max 3% (CPI?) and the pre 88 bit doesn't need to be escalated by the trustees so potentially quite a difference. If I've got that bit wrong I would appreciate the more knowledge folk on this forum letting me know as it might influence my thinking.

xylophone

Schemes have no obligation to index link pre 88 GMP in payment or post 88 GMP in payment beyond 3% CPI ( or possibly RPI in some schemes).

If a pension is drawn before GMP age, it is usual for the scheme to escalate the whole of the pension in payment as though it were excess (ie by scheme rules).

Once GMP age is reached, the pension is split out into its pre 88/post 88/excess for escalation purposes.