Rules on using Occupational Pensions Revaluation Orders

FloraandFauna

I'm sorry, TVAS, I can see you're trying to help, but I don't understand a word of that.

I don't need an Ombudsman as the scheme hasn't done anything yet - I am merely trying to work out how to judge the revaluation principles when the time comes to choose a date. Nor do I need an IFA, as I don't need any advice on the plan. Nor do I wish to change the NRA of the plan - it is 60, and I shall be 60 by 2032, so all is good there.

I'm just trying to work out if I have understood the very learned opinion of @timodell!

Croeso69

TVAS said:

The pension is driven by the date of retire you attain the scheme retirement age. You cannot change the age at which you retire therefore the month in relation to the month they use to revalue the pension cannot be changed unless they decide to change it and that would need to be in the scheme rules.

Or
Your age in months and years if you retire early although you will pay a penalty for taking the benefits early. Depending on the scheme some will revalue your pension to the scheme normal retirement date then discount back by the number of years and months to the age of taking benefits. This is generous. Less generous is when the scheme revalues until your actual age and then applies the penalty for age in years and months benefits is taken early. 
Somebody above mentioned leaving the pension before 1990. Schemes are not obliged to revalue the excess pension (the amount over the GMP) in deferment:
Social Security Act 1991

Leavers on or after 1 January 1991

Revaluation extended to cover the whole of the member's pension, in excess of the GMP.  Annual increase applicable was the increase in the Retail Price Index (RPI), capped at 5% (sometimes known as 5% Limited Price Indexation - LPI).

The minimum is above the scheme can do more if they want to. 
With regard to IFA's they would not be interested in giving you advice on a DB plan unless there is a fee however as I said before you cannot change the month when you attain the scheme normal retirement age. 

If you think the scheme has done it wrong you would complain to the PENSION OMBUDSMAN as they deal with occupational schemes.     

There was no obligation to revalue non GMP if you left before 01/01/1986.

If you left on or after 01/01/1986 but before 01/01/1991 there was an obligation to revalue non GMP but only in respect of post 01/01/1985 service. So if you left on 31/12/1990 with 12 years service, only 6/12ths, ie 50%, of the non GMP had to be revalued.

zagfles

FloraandFauna said:

This has blown my mind somewhat.

I have just been trying to work out how I would apply that to my deferred DB in 2032, which is when I'm aiming to retire. I think it goes something like this:
- I left a DB scheme 15th December 2009
- revaluation rates, depending on whether I start the pension pre or post 15th of December 2032 are (in the current revaluation table):
  - 1st January 2009 - 31st December 20[20]: 23.60%
  - 1st January 2010 - 31st December 20[20]: 25.30%

So just pretend for a moment... that the revaluation table numbers above were actually published in 2031...

If I retired in 2032 after my leaving anniversary, i.e. 16th December 2032, I would use the 1st January 2009 - 31st December 2032 row, of the table published in November 2031. Which would be the 23.60% revaluation.

If I retired before my leaving anniversary, i.e. 16th June 2032, I would use the 1st January 2010 - 31st December 2032 row, of the table published in November 2031. Which would be the 25.30% revaluation.

So I would be better off retiring before the anniversary date? Or is there some other calculation I should be aware of? Would that give me the higher revaluation rate, but applied to 1 years' 'less'?

Yes. This is an anomaly because the rates are worked out by compounding the Sept inflation rates (RPI prior to 2011, then CPI). Sept 2009 RPI was negative, -1.4%, hence the tables show a higher revaluation from Jan 2010 than from Jan 2009.

So in your case, the pension would drop after the anniversary date as you gain the Sept 2009 (negative) inflation. It would then increase after 1st Jan each year as the 2009 rate is replaced by last Sept's rate (assuming last Sept's rate was positive!)

FloraandFauna

Thank you, Zagles!

I thought I had it, but then I often think I understand something, only to... not. So many thanks for confirming that. I suspect I will spend some time this weekend mucking about the internet world of inflation rate / RPI / CPI issues, such as, why September... 

FloraandFauna

Aiee, sorry, zagfles - forgive me, it's late for me.

zagfles

FloraandFauna said:

Thank you, Zagles!

I thought I had it, but then I often think I understand something, only to... not. So many thanks for confirming that. I suspect I will spend some time this weekend mucking about the internet world of inflation rate / RPI / CPI issues, such as, why September... 

Sept inflation is used for all sorts of official purposes such as state pension, benefits etc. It doesn't really matter which month is used as inflation figures measure the change over the last 12 months, so they give the average rate of price change over the last year, rather than the rate prices are changing at that moment.

FloraandFauna

Thank you. I was indeed wondering why they just picked one month, but if it reflects the average rate over 12 months that makes sense.

Notepad_Phil

So have I got the following right for an example of a deferred final salary pension with a retirement date this year of say the 10th August 2021?

I would look through the "The Occupational Pensions (Revaluation) Order 2020" ( https://www.legislation.gov.uk/uksi/2020/1332/made ) and use the figure for "1st January 1995 - 31st December 2020" i.e. 86.2% if if I had left employment on the 11th August 1994.

But, if I had left on the 9th then I would use the figure for "1st January 1994 - 31st December 2020" i.e. 90.3%

zagfles

Notepad_Phil said:

So have I got the following right for an example of a deferred final salary pension with a retirement date this year of say the 10th August 2021?

I would look through the "The Occupational Pensions (Revaluation) Order 2020" ( https://www.legislation.gov.uk/uksi/2020/1332/made ) and use the figure for "1st January 1995 - 31st December 2020" i.e. 86.2% if if I had left employment on the 11th August 1994.

But, if I had left on the 9th then I would use the figure for "1st January 1994 - 31st December 2020" i.e. 90.3%

Yes. Deferment is revalued on whole years, and the years that count are last year back the number of whole years of deferment. So if you take the pension later in the calendar year to when you left, you go from 1st Jan of the year you left to 31st Dec last year. If you take it earlier in the calendar year you go from the year after you left.

Note that if you have GMP this is revalued completely differently, there are various methods but the usual one is fixed rate, and that applies over tax years. The above applies to excess over the GMP.

Notepad_Phil

zagfles said:

Notepad_Phil said:

So have I got the following right for an example of a deferred final salary pension with a retirement date this year of say the 10th August 2021?

I would look through the "The Occupational Pensions (Revaluation) Order 2020" ( https://www.legislation.gov.uk/uksi/2020/1332/made ) and use the figure for "1st January 1995 - 31st December 2020" i.e. 86.2% if if I had left employment on the 11th August 1994.

But, if I had left on the 9th then I would use the figure for "1st January 1994 - 31st December 2020" i.e. 90.3%

Yes. Deferment is revalued on whole years, and the years that count are last year back the number of whole years of deferment. So if you take the pension later in the calendar year to when you left, you go from 1st Jan of the year you left to 31st Dec last year. If you take it earlier in the calendar year you go from the year after you left.

Note that if you have GMP this is revalued completely differently, there are various methods but the usual one is fixed rate, and that applies over tax years. The above applies to excess over the GMP.

Many thanks for the confirmation - it does seem to be unfair on some, but I guess there are reasons behind it. Luckily for me, my dates do mean that the method is to my advantage.