Is RPI Changes To DB Pension The Next Misselling Scandal

molerat

Malthusian said:

molerat said:

Some of us were stitched up with RPI to CPI change several years ago even though my booklet says RPI.

What the scheme rules say is what matters (e.g. whether they specify RPI or only "inflation"). The booklet was probably accurate at the time.

I know, "increases as announced by the Secretary of State from time to time".

I wonder how BT and their pensioners now think after dragging it through the courts ?

Black_Cat2

Done a bit more investigating and looks like the CPI rate is done monthly and it varies a bit over the year so how do the pension people come up with which rate they will use for the year? 🤔

Linton

Black_Cat2 said:

Done a bit more investigating and looks like the CPI rate is done monthly and it varies a bit over the year so how do the pension people come up with which rate they will use for the year? 🤔

There is normally a fixed date once a year when the prices at that date are compared with the prices one year previously. 

Black_Cat2

Linton said:

Black_Cat2 said:

Done a bit more investigating and looks like the CPI rate is done monthly and it varies a bit over the year so how do the pension people come up with which rate they will use for the year? 🤔

There is normally a fixed date once a year when the prices at that date are compared with the prices one year previously. 

Aah okay ty 👍

Marcon

Black_Cat2 said:

Done a bit more investigating and looks like the CPI rate is done monthly and it varies a bit over the year so how do the pension people come up with which rate they will use for the year? 🤔

It'll be specified in the scheme's Trust Deed & Rules (the documents which govern the running of this particular scheme).

Marcon

Mickey666 said:

daveyjp said:

How is using RPI 'inflation busting' when its an actual measure of inflation?  Inflation busting would have to be RPI plus x%!

More to the point, not all DB pensions have annual increases, RPI or otherwise, as they are at the discretion of the plan trustees.

I understand there was some change in the law in 1997 about this, though I'm not clear about the details.  I know it's a contentious issue and that there have been campaigns to change the law to force annual increases where they are currently discretionary.

Increases are very rarely at the discretion of the trustees - it's the employer who has to foot the bill, so their consent tends to be rather important!

Layman's guide to mandatory increases: https://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/pensions-in-payment/annual-increases

The campaigns to 'force' annual increases for DB schemes which don't have them were dead and buried long ago.

Marcon

Black_Cat2 said:

Originally in previous statement my OH was told benefits above GMP will increase by the cost of living  in the UK or 5% a year compound, whichever is lower.

Latest statement now says it increases by Sept CPI capped at 5%.

'The lower of...' and 'capped at...' mean exactly the same thing.

Black_Cat2 said:

Does this mean his non-GMP will only increase by 0.5% for the whole of the year?  His figure is not much, just around the £2000 mark, so will it only go up by £2000 x 0.5% = £2010, £10 for the year?!?

Is 0.5% because of the Covid situation and usually will it be higher? 🥴

Yes; that's the increase for the year.

0.5% isn't because of COVID, it's because that's what inflation was during the relevant period. If we hit periods of high inflation, that £10 a year increase could become £100 a year.

Black_Cat2 said:

If his pension only increases by as little as £10 a year (or thereabouts) then doesn't it seem wise to look into transferring it when he's 55 to earn much better rates elsewhere.  I see some peeps get slated here for suggesting it... but is it not so crazy? 

If he transfers out of his DB scheme, the amount of cash he's moving isn't going to buy him an annuity (posh term for pension) which is anything like as good as the one provided by his DB scheme. DB schemes aren't run to make a profit from members; annuities provided by commercial firms such as insurers most certainly are,  hence the higher cost to buy one.

He might buy an annuity with what he fondly hopes will be bigger increases, but they will be based on a much smaller starting amount. The bigger the increase he wants on his annuity, the lower the starting level.

There are alternative ways to access his pension if he does transfer out of his DB scheme (e.g. drawdown), but there's never a guarantee that he will be at least as well off, never mind better off, than if he stays where he is.

John_

lookafterpennies said:

The point I was trying to make was;-
If any one recently took their DB pension, they may have compared the scheme benefits against the transfer value, an attraction and possible factor in choosing the DB pension could be the ongoing and compounding RPI increases, however the RPI measure is to be replaced with a less generous measure (CPIH - ave l% less PA) this change could equate to thousands or tens of thousands of pounds over the life time of the pension and thus could have influenced the initial decision to either take the DB pension or take a transfer value. 

So who’s mis-sold what in your goalpost-moving scenario?

lookafterpennies

"So who’s mis-sold what in your goalpost-moving scenario?"
No one technically mis-sold anything.  Choosing whether to take your DB pension or take a transfer value option is an important financial decision, so when you get all the facts and figures to make that decision it is annoying to then find out that part of that information, as mentioned in pre retirement chat and as printed in Pension Booklet, is to be changed. I am not blaming any one (other than the government) but it will result in people getting less than what they had expected, even if it is at some point in the future, I see that as being wrong.

Middlestitch

Black_Cat2 said:

I think this change may already have taken place for my OH but if anyone can help please:

Originally in previous statement my OH was told benefits above GMP will increase by the cost of living  in the UK or 5% a year compound, whichever is lower.

Latest statement now says it increases by Sept CPI capped at 5%.

My question(s) here is am I right in thinking that he is worse off now?  Sept CPI is 0.5% - I believe from a Google search.  Does this mean his non-GMP will only increase by 0.5% for the whole of the year?  His figure is not much, just around the £2000 mark, so will it only go up by £2000 x 0.5% = £2010, £10 for the year?!?

Is 0.5% because of the Covid situation and usually will it be higher? 🥴

Black_Cat2 said:

Ty @Linton but I'm a little confused.  If his pension only increases by as little as £10 a year (or thereabouts) then doesn't it seem wise to look into transferring it when he's 55 to earn much better rates elsewhere.  I see some peeps get slated here for suggesting it... but is it not so crazy? 

I think you're quite confused, which is never a surprise with pensions. Your husband isn't yet 55, so his pension isn't yet in payment. It is increasing each year while it is 'deferred' (ie before he takes his benefits from the scheme) in line with CPI, to a maximum of 5%. What measure is used to increase it once the pension is actually in payment - may not be CPI. The scheme booklet and/or benefit statement will tell you.

No sure why you say you would look at transferring once he's 55. That's the minimum age at which he can start to draw his pension - he can transfer at an earlier age (but remember it isn't likely to be in his interests to do so).