How does an NHS pension 'pot' take account of Infation?

JohnB47

This isn't a question about how an NHS pension, in payment, increases each year. I know it's by the increase in CPI figure for September.

My question is, for a pension not yet being received, how does is the 'potential' pension uprated in line with Inflation?

For example, someone retiring from the NHS on 5th April next year won't benefit from the expectedly high September 2021 CPI figure soon to be announced. That is, they won't receive a certain pension and then have it immediately increased by that CPI figure.

So, will that high CPI figure have absolutely no bearing on the pension payable on 5th April next year, or is that CPI figure somehow used to uprate the pension, even though it's not yet in payment?

Thanks.

Flugelhorn

When I retired from NHS  I later had a "second bite" payment which was related to CPI etc  in the year I retired 

DH's arrived within a couple of months but mine took longer (practitioner - system takes for ever to catch up) - I got another 3K in lump sum and increase in monthly sum. 

JohnB47

Flugelhorn said:

When I retired from NHS  I later had a "second bite" payment which was related to CPI etc  in the year I retired 

DH's arrived within a couple of months but mine took longer (practitioner - system takes for ever to catch up) - I got another 3K in lump sum and increase in monthly sum. 

Yes, you're extra payment probably related to the period from April 5th, that year, until the date you retired. For example, if inflation of 4% came into effect on April 5th of that year and you retired 6 months later, your pension would be increased by 2%.

Edit: No, I'm thinking that's wrong. Just ignore me.

Anyway, as I said, this question is really about how a pension, yet to be in payment, is uprated by inflation.

SouthCoastBoy

This may be helpful, but I guess it depends what part of the NHS you worked/are working in. https://www.bma.org.uk/pay-and-contracts/pensions/increases-to-your-pension/inflationary-increases-to-your-nhs-pension

mjm3346

My question is, for a pension not yet being received, how does is the 'potential' pension uprated in line with Inflation?


If it's anything like "classic" civil service 

There is nothing to uprate before the pension starts  - for pensions starting say April 2022 uprating will be based on Sept 2022 figures. If a pension started Sept this year they would get part of the 2021 uprating

Flugelhorn

JohnB47 said:

Flugelhorn said:

When I retired from NHS  I later had a "second bite" payment which was related to CPI etc  in the year I retired 

DH's arrived within a couple of months but mine took longer (practitioner - system takes for ever to catch up) - I got another 3K in lump sum and increase in monthly sum. 

Yes, you're extra payment probably related to the period from April 5th, that year, until the date you retired. For example, if inflation of 4% came into effect on April 5th of that year and you retired 6 months later, your pension would be increased by 2%.

Edit: No, I'm thinking that's wrong. Just ignore me.

Anyway, as I said, this question is really about how a pension, yet to be in payment, is uprated by inflation.

If yet to be in payment it is either by the salary being increased or for practitioners, the dynamising factors 

hugheskevi

JohnB47 said:

My question is, for a pension not yet being received, how does is the 'potential' pension uprated in line with Inflation?

If they are not receiving a pension, they are either an active or deferred member. If they are a deferred member (ie left the pension scheme) their pension increases in line with inflation.

If they are an active member, their pension is likely to be either a final salary or career average pension in the public sector. Career average are mostly post 2015 schemes, or post 2007 in Civil Service and post 2014 in England and Wales LGPS. If career average, accrued pension increases in line with inflation, possibly more in some schemes (including NHS).

If final salary, then there is no automatic inflation increase for active members. Pension is determined according to years of service and final salary. However, definition of final salary varies across schemes. There is usually some form of reference to prior years beyond the last 12 months. This may be quite limited, eg, just the last 3 years, and only applies if full-time equivalent salary has actually decreased. Or it may look further back, eg, last 13 years, and inflation-adjust those past years before looking at the best year, and then use the best of a number of final salary definitions. For example, the Civil Service Premium pension final salary definition uses the highest of:

• Pensionable earnings in last 12 months
• Highest inflation-adjusted pensionable earnings from any of the last complete 4 scheme years (1 April - 31 March)
  
• Highest average inflation-adjusted pensionable earnings in any period of three complete scheme years during the last 13 years ending on last day of service
  

In the schemes with more generous, inflation adjusted longer look-back periods you effectively have a pension that increases based on final salary but with an underpin of inflation growth where salary increases by less than inflation.

Given the last decade of pay restraint causing earnings to fall behind price growth in the absence of promotion, it is not uncommon for such members to have a 'final salary' that is 10% or more higher than their actual salary.

I think the NHS 1995 scheme looks back 3 years, whereas the 2008 scheme looks back 10 years (officers, not practitioners) and uses inflation-adjusted past values to calculate final salary.

rainbowtrout

The current CARE 2015 pension is increased by CPI+1.5% per year. 

JohnB47

Thanks everyone. All very helpful. 

I'm still wondering though - if inflation is 4% in Sept this year and someone retires on 5th April next year, is that 4% figure used in some way to adjust or uprate their pension?

The link given by SouthCoastBoy is great but a bit difficult to understand.

rainbowtrout - you said "The current CARE 2015 pension is increased by CPI+1.5% per year.". I presume you mean that applies to active members (ie not yet in payment). If so, when is that CPI+1.5% applied? 

Thanks again everyone - this is just a curiosity of mine. 

jimi_man

JohnB47 said:

Thanks everyone. All very helpful. 

I'm still wondering though - if inflation is 4% in Sept this year and someone retires on 5th April next year, is that 4% figure used in some way to adjust or uprate their pension?

The link given by SouthCoastBoy is great but a bit difficult to understand.

rainbowtrout - you said "The current CARE 2015 pension is increased by CPI+1.5% per year.". I presume you mean that applies to active members (ie not yet in payment). If so, when is that CPI+1.5% applied? 

Thanks again everyone - this is just a curiosity of mine. 

Seems to be 3.1% according to the BBC news today.

t0rt0ise

JohnB47 said:

Thanks everyone. All very helpful. 

I'm still wondering though - if inflation is 4% in Sept this year and someone retires on 5th April next year, is that 4% figure used in some way to adjust or uprate their pension?

No, if you retire on 5th April you would get no increase. Retiring later, mid year gives a percentage of the increase. It's explained for the last increase in the last newsletter. 

https://www.nhsbsa.nhs.uk/sites/default/files/2021-04/Pensioners_Newsletter_2021_%28V1%29_Online_03.2021.pdf