So not all pension funds give an annual increase!

BML

I was asked by a friend if my pension fund gave annual increases to my last employer and I answered in the affirmative. He then told me that when he received the annual letter from the company pension scheme he was a member of he noticed that there was not the annual increase he thought he had been receiving for the last few years or so he wrote to them and asked why he had not received an annual increase. The answer he received is as follows.
Under the Rules of the Plan, pensions earnt prior to 6 April 1997 do not receive increases in payment. As you left pensionable service in 1993 your pension is entirely made up of pre 1997 service and therefore is not eligible for annual pension in payment increases.
So, is it common practice or not for pension administrators to make an annual increase?

squirrelpie

So, is it common practice or not for pension administrators to make an annual increase?

It is a common practice, but what matters in any particular case is what the rules of that scheme say.



Why does your friend think he's been receiving increases if he hasn't?

hugheskevi

Legislation sets out the minimum, statutory, increases which a pension must offer. Individual pension schemes can choose to have rules more generous than the statutory minimum if they wish.

Practices among individual schemes vary considerably. For example, it used to be common to have discretionary increases, where schemes only paid increases when asset performance was good.

The Pension Protection Fund uses statutory minimum increases, which can lead to significant loses of revaluation/indexation entitlement for some members of schemes entering the PPF. In some cases, individuals can end up receiving 50% of their original pension entitlement as the difference in revaluation/indexation compound over time.

This link sets out the statutory minimum for preservation, revaluation and indexation which is different depending on when the pension was accrued.

xylophone

As you left pensionable service in 1993 your pension is entirely made up of pre 1997 service and therefore is not eligible for annual pension in payment increases.

What is his position regarding pre 88 and post 88 GMP?

jamesd

From the link given by hugheskevi it seems that asking how much is GMP and the pre/post 1988 split would be sensible.

GMP applies to pensions that contracted their members out of the earnings-related part of thee state pension and in exchange accepted an obligation to at least match the state pension equivalent. Contracting out was normal but not mandatory. So someone might have failed to apply the GMP rules to that part of his pension: "GMP accrued from 6/4/1988 onwards - increases in line with CPI, max 3.00% pa."

Dox

BML wrote: »

I was asked by a friend if my pension fund gave annual increases to my last employer and I answered in the affirmative. He then told me that when he received the annual letter from the company pension scheme he was a member of he noticed that there was not the annual increase he thought he had been receiving for the last few years or so he wrote to them and asked why he had not received an annual increase. The answer he received is as follows.
Under the Rules of the Plan, pensions earnt prior to 6 April 1997 do not receive increases in payment. As you left pensionable service in 1993 your pension is entirely made up of pre 1997 service and therefore is not eligible for annual pension in payment increases.
So, is it common practice or not for pension administrators to make an annual increase?

Pension administrators don't make increases. Any increases are governed by legislation, the rules of the scheme, the trustees and the company sponsoring the scheme (whose consent would normally be required for any 'discretionary' increases - i.e. those not required by law/under the rules of the scheme).

He could be wrong about receiving increases in previous years, or (depending on his age) there could be an interaction with reaching state pension age; there might have been discretionary increases; or it could simply be that his tax code changed for pension payroll purposes. Rather than trying to get him bogged down in the niceties of GMPs, suggest he checks directly with the scheme administrators. They will have a record of his payments and should be able to answer him fairly promptly.