How much to live on

RetSol

This raises another point. Many index-linked pensions are subject to a 5% upper limit, in which case the recipients could get a below-inflation increase. If it's still over 5% in March, I will.

Probably one for @hugheskevi.  Anyone know whether the inflation increase under the civil service classic scheme is capped?

I have been unable to find a definitive answer online so far. 

hugheskevi

RetSol said:

This raises another point. Many index-linked pensions are subject to a 5% upper limit, in which case the recipients could get a below-inflation increase. If it's still over 5% in March, I will.

Probably one for @hugheskevi.  Anyone know whether the inflation increase under the civil service classic scheme is capped?

I have been unable to find a definitive answer online so far. 

No capping, almost all public service pensions are increased by uncapped CPI.

For older members (those who reached State Pension age before 2016) it is a bit more complicated, as the increase is partially applied through the State Pension, but the overall effect is CPI uprating.

RetSol

No capping, almost all public service pensions are increased by uncapped CPI.

Thank you, @hugheskevi.  

I think that I'll celebrate by putting the heating on this afternoon.... 

arnoldy

hugheskevi said:

RetSol said:

This raises another point. Many index-linked pensions are subject to a 5% upper limit, in which case the recipients could get a below-inflation increase. If it's still over 5% in March, I will.

Probably one for @hugheskevi.  Anyone know whether the inflation increase under the civil service classic scheme is capped?

I have been unable to find a definitive answer online so far. 

No capping, almost all public service pensions are increased by uncapped CPI.

For older members (those who reached State Pension age before 2016) it is a bit more complicated, as the increase is partially applied through the State Pension, but the overall effect is CPI uprating.

The other side of this coin is that almost all Private Sector pensions are capped - it's a bit of a myth with people that they are "index linked". For example if you retired at this moment on a private sector final salary pension, typically - a small amount would usually be capped at 0% and of the rest of your pension half would be capped @2.5% and half would be capped @5%. Thats if the scheme has the funding surplus to pay rises (usually min 105% funded is required) otherwise its very straight forward - you get 0% rises!

hugheskevi

arnoldy said:

The other side of this coin is that almost all Private Sector pensions are capped - it's a bit of a myth with people that they are "index linked". For example if you retired at this moment on a private sector final salary pension, typically - a small amount would usually be capped at 0% and of the rest of your pension half would be capped @2.5% and half would be capped @5%. Thats if the scheme has the funding surplus to pay rises (usually min 105% funded is required) otherwise its very straight forward - you get 0% rises!

That isn't quite right. The increases depend on statutory minimum increases, scheme rules and date of pension accrual. Note the text below refers to excess over Guaranteed Minimum Pension (GMP), with different rules applying to the part of pension that is GMP.

For pension accrued prior to 1997 there is no statutory minimum increase, so increases depend on whatever the scheme rules state. Many schemes operate discretional indexation for this period, and so if not well funded those schemes may well not award increases.

For pension paid based on service between 1997 and 2005 the statutory minimum increase is CPI capped at 5% (schemes uprating by RPI do not have to provide a CPI underpin, should CPI exceed RPI). Scheme rules may provide for more than this, and schemes could apply discretional increases in excess of the higher of statutory minimum and scheme entitlement.

For pension paid based on service after 2005 the statutory minimum increase is CPI capped at 2.5% (schemes uprating by RPI do not have to provide a CPI underpin, should CPI exceed RPI). Scheme rules may provide for more than this, and schemes could apply discretional increases in excess of the higher of statutory minimum and scheme entitlement.

blue.peter

Sterlingtimes said:

November's CPI is 5.1% and RPI is 7.1%. 

A bit worryingly, the CPIH (i.e., CPI including housing cost) increase for November is 4.6%. It's less than both CPI and RPI. RPI is to be phased out in 2030, and replaced by CPIH.

There's a table in the article here that shows a consistent shortfall of CPIH when compared with RPI. Assuming that this continues, this implies that anyone with an RPI-linked pension or annuity is likely to get smaller increases after 2030 than they would have done if RPI was to continue. I haven't done a similar long-term comparison between CPI and CPIH, but don't like the look of the single-month snapshot above.

hugheskevi

blue.peter said:

Sterlingtimes said:

November's CPI is 5.1% and RPI is 7.1%. 

A bit worryingly, the CPIH (i.e., CPI including housing cost) increase for November is 4.6%, i.e., it's less than both CPI and RPI. RPI is to be phased out in 2030, and replaced by CPIH.

There's a table in the article here that shows a consistent shortfall of CPIH when compared with RPI. Assuming that this continues, this implies that anyone with an RPI-linked pension or annuity is likely to get smaller increases after 2030 than they would have done if RPI was to continue. I haven't done a similar long-term comparison between CPI and CPIH, but don't like the look of the single-month snapshot above.

Coincidentally, the High Court granted permission for a Judicial Review of the decision today - https://www.ipe.com/news/pension-funds-get-go-ahead-to-contest-rpi-reform-plan-in-court/10057088.article.

The article states:

"Last November, HM Treasury and the UK Statistics Authority (UKSA) announced the decision to effectively replace RPI with the Consumer Prices Index including owner occupiers’ housing costs (CPIH) from 2030. RPI tends to be 1% higher than CPIH."

blue.peter

hugheskevi said:

Coincidentally, the High Court granted permission for a Judicial Review of the decision today - https://www.ipe.com/news/pension-funds-get-go-ahead-to-contest-rpi-reform-plan-in-court/10057088.article.

The article states:

"Last November, HM Treasury and the UK Statistics Authority (UKSA) announced the decision to effectively replace RPI with the Consumer Prices Index including owner occupiers’ housing costs (CPIH) from 2030. RPI tends to be 1% higher than CPIH."

Well,well. Thank you. I wasn't aware that this was even a possibility. It's really good to see scheme trustees challenging this change. They've definitely got the moral high ground in looking out for the interests of their members here. I don't know what the attitudes of these particular employers are, but I know that some employers would be far from happy with scheme trustees doing this. (Yes, I did see the bit about it affecting their investments, too, but still.)

blue.peter

hugheskevi said:

For pension accrued prior to 1997 there is no statutory minimum increase, so increases depend on whatever the scheme rules state. Many schemes operate discretional indexation for this period, and so if not well funded those schemes may well not award increases.

Absolutely true. It's also worth noting that the Inland Revenue discretionary rules that applied to occupational pensions prior to 2006 allowed (but did not require) occupational schemes to provide automatic increases of up to 3%/year, irrespective of inflation. Some still do this.

Sterlingtimes

So I have an annuity (ex-DB fund) from Rothesay that pays RPI up to 5%. Presumably, Rothesay has bought RPI government stock. Now the government can fiddle the indices as it wishes to reduce its commitment and hence the value of the annuity. This does not feel correct. Of course, when inflation is high the new "RPI-minus" still has to be capped at 5%.