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Is my deferred pension going to grow in line with RPI or will it now be capped?

Hello all,

Firstly, thank you for clicking on this.

I worked in the private sector with the Liverpool Victoria from June 1990 to July 1997. The deferred pension's still with them. Liv Vic state the following with regards to future increases in the same letter :

"The scheme has adopted LPI increases capped at 2.5% per annum with effect from 6th April 2006"

and :

"You will gain increases in line with RPI to a maximum of 5%, and that this is calculated in accordance with Section 52 revaluation orders"

Surely the last two quotes are in part contradiction of each other. Am I interpreting it right by saying that pension monies attained pre 6 Apr 06 will attract an increase in RPI of up to 5%, whilst everything after will only gain up to 2.5%?

Thanks in advance awfully

Graham

Comments

  • MrChips
    MrChips Posts: 1,032 Forumite
    Part of the Furniture 500 Posts Combo Breaker
    Your pension will be revalued between leaving the Scheme and the date of your retirement based on the increase in the Retail Prices Index over that time (but subject to a maximum of 5% pa compound). This would be the case no matter when it was earned as it is the statutory minimum (for anyone leaving a final salary scheme since 1991).

    It sounds like your Scheme has changed the pension increases awarded in payment for any pension earned from April 2006 (to the new statutory minimum of the increase in the RPI capped at 2.5%). This won't affect you as all your pension was earned up to 1997.
    If I had a pound for every time I didn't play the lottery...
  • benny5
    benny5 Posts: 245 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    MrChips wrote: »
    on date:

    Being in a similar position (about to deffer) I have an interest in this topic. Are there changes being proposed to alter this to 2.5%.

    [quote
    It sounds like your Scheme has changed the pension increases awarded in payment for any pension earned from April 2006 (to the new statutory minimum of the increase in the RPI capped at 2.5%). This won't affect you as all your pension was earned up to 1997.quote]

    I have to admit I am somewhat confused by this, does this mean that for FS pension payment against pension accrued since April 2006 will be capped at 2.5%
  • MrChips
    MrChips Posts: 1,032 Forumite
    Part of the Furniture 500 Posts Combo Breaker
    benny5 wrote: »
    Being in a similar position (about to deffer) I have an interest in this topic. Are there changes being proposed to alter this to 2.5%.

    There have been changes proposed to reduce the cap from 5% to 2.5% although at the moment nothing formal. Anyway, (adverse) changes can only be made to future benefits and not to anything accrued in the past so the revaluation method for the pension you have accrued so far couldn't be affected. This is also only a statutory minimum (although it is commonly applied). If the minimum went to 2.5%, it would be up to your Scheme to actively change the Rules to this lower version for future benefits.
    benny5 wrote: »
    Being I have to admit I am somewhat confused by this, does this mean that for FS pension payment against pension accrued since April 2006 will be capped at 2.5%

    Again this is only a statutory minimum (for pension accrued since April 2005). Schemes can't offer lower pension increases than this but they can be higher (and often are).

    For information, statutory minimum (in payment) increases are as follows:

    Non GMP Pension accrued prior to April 1997 - 0% (but most Schemes offer more than this)
    Pension accrued from April 1997 to April 2005 - Increase in RPI capped at 5%pa
    Pension accrued from April 2005 - Increase in RPI capped at 2.5% pa
    If I had a pound for every time I didn't play the lottery...
  • benny5
    benny5 Posts: 245 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    Thank you MrChips.

    Why oh why do pensions have to be so complicated or it just my rapidly declining grey matter.
  • MrChips
    MrChips Posts: 1,032 Forumite
    Part of the Furniture 500 Posts Combo Breaker
    It is quite complicated but you get used to it ;)

    The reason for the complication is the need to change the prevailing legislation over time as the financial landscape changes (eg the move to a low inflationary environment) or as a need is sensed to increase protection to pension scheme members (blame Robert Maxwell!). This combined with the overriding principle that what people have accrued in the past should not be changed adversely leads to all these different tranches of pension.
    If I had a pound for every time I didn't play the lottery...
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    The Pension Bill published today cuts revaluation for deferred schemes from 5% to 2.5%, but won't affect existing deferred pensions.
    Trying to keep it simple...;)
  • benny5
    benny5 Posts: 245 Forumite
    Part of the Furniture 100 Posts Combo Breaker
    Am I correct in thinking that, as yet, this has not been enshrined law and may not be applied (to future deferments) before it does.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Correct, the Bill has to be debated, amended etc first.
    Trying to keep it simple...;)
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