New pensioner only receiving part of an increase

Marcon

pimento said:

Marcon said:

hugheskevi said:

pimento said:

..and I'm still not clear why they do it.  If I'd started work in April and a pay rise had been given to everyone in July, I would have received all of it not a pro-rata amount.  I'm not clear why a pension is different.

There are 2 key dates - when you leave service and when you start pension (and they may be different or they may be the same if you retire from active service). Your pension is inflation protected from the time its value is calculated upon leaving service.

Be aware that inflation protection (at least in virtually all private sector schemes) is limited. You don't get full inflation proofing, so don't expect to see double-digit increases, either while the pension is revaluing in deferment or once it is in payment, unless the scheme rules are considerably better than statutory requirements.

hugheskevi said:

If you do not draw pension immediately upon leaving, your pension entitlement is calculated as at last day of service and then revalued until you draw the pension. The revaluation ensures the pension retains its real value, value, subject to scheme rules until you draw your pension.

Pensions are not revalued until they start to be drawn. Increases in deferment are based on whole years, not years and part-years. See https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/ for a full explanation.

Indeed.  I've been advised that our increase this year is being based on "CPI UN" rather than the RPI it has previously been based on.  I had to Google it and I still don't know why.  I expect it's because CPI UN is lower than RPI.

If the scheme rules didn't specify RPI as the measure of increase, then (most) schemes opted for CPI because, as you say, it has historically been lower than RPI.

xylophone

 I've been advised that our increase this year is being based on "CPI UN" rather than the RPI it has previously been based on.

What are the rules of your scheme in respect to the index to be applied when calculating increase to pension in payment? 

https://www.nortonrosefulbright.com/en/knowledge/publications/a2253861/pensions-briefing-rpi-and-cpi-ten-things-you-should-know

From April 2011, the then Government decided to switch to CPI rather than RPI to calculate increases in social security payments and public sector pension benefits. By 2013, the RPI was no longer considered compliant with international standards. On March 14, 2013 it was removed from designation as a "national statistic", though it continued to be used for government bonds and other purposes. The Consumer Prices Index including Housing (CPIH) was introduced on the same date, as a variant of CPI but including a measure of owner-occupiers' housing costs. The switch from RPI- to CPI-based (and subsequently CPIH-based) calculations was subsequently extended to the minimum statutory increases required for private sector pensions. However, the Government did not introduce an overriding or modifying statutory power allowing schemes to switch automatically to CPI (or CPIH)-linked indexation or revaluation where RPI was “hard-wired” or written into the scheme rules. Therefore, the impact of the statutory change on indexation and revaluation in private-sector schemes depends on each scheme's trust deed and rules.

The remainder of this briefing looks at how the Courts have answered various questions arising when schemes have attempted to switch to CPI instead of RPI to calculate increases.

zagfles

There are other foibles with indexation and revaluation which in these times of high inflation can make a big difference.

Revaluation (ie the increase applied between the time you leave and the time you draw the pension) is usually done on whole years only, so you lose part year revaluation, eg if you left the job in August 2012 and take the pension in July 2022 you'd only get 9 years. See this thread for details https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Whereas indexation (the increase once in payment) is usually pro-rated in the first year. So you do tend to lose out on some inflation increase when you first start drawing the pension.

But the other important thing to bear in mind, especially if the scheme has a cap on inflation increases as statutory revaluation does, is that revaluation is capped on the overall increase over the revaluation period. So this means if the pension has been deferred say 10-15 years, then if, say this September's inflation is 10% you would probably get the benefit of the full 10%, because average inflation over the period is below the cap. But once you start taking the pension, indexation increases are capped each year. So if inflation stays at 10%, you might only get 3% or 5% increases.  So if you have a deferred DB pension you're thinking of taking it might be worth waiting till the new year when it could be worth a lot more if inflation stays at 10%. 

molerat

For public sector pensions the treasury publish an increase table every year which includes deferred pensions coming into payment details.  No doubt the majority of schemes use similar

https://www.gov.uk/government/publications/public-service-pensions-increase-2022

jimi_man

Marcon said:

hugheskevi said:

pimento said:

..and I'm still not clear why they do it.  If I'd started work in April and a pay rise had been given to everyone in July, I would have received all of it not a pro-rata amount.  I'm not clear why a pension is different.

There are 2 key dates - when you leave service and when you start pension (and they may be different or they may be the same if you retire from active service). Your pension is inflation protected from the time its value is calculated upon leaving service.

Be aware that inflation protection (at least in virtually all private sector schemes) is limited. You don't get full inflation proofing, so don't expect to see double-digit increases, either while the pension is revaluing in deferment or once it is in payment, unless the scheme rules are considerably better than statutory requirements.

hugheskevi said:

If you do not draw pension immediately upon leaving, your pension entitlement is calculated as at last day of service and then revalued until you draw the pension. The revaluation ensures the pension retains its real value, value, subject to scheme rules until you draw your pension.

Pensions are not revalued until they start to be drawn. Increases in deferment are based on whole years, not years and part-years. See https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/ for a full explanation.

Really? My wife gets a statement every year (ok, it's online now) from the LGPS saying that her pension has been revalued with CPI to £xxxxx figure. Is that not the same thing?

molerat

Really? My wife gets a statement every year (ok, it's online now) from the LGPS saying that her pension has been revalued with CPI to £xxxxx figure. Is that not the same thing? Report

That is not a cast in stone amount, it is only a guide, the actual amount can only be given at commencement.  If you look at the link I posted earlier you will see the tables they use so yes the amount given annually is pretty good and likely accurate but it will not be a promise. There could have been an error somewhere which will only be found when crunching the numbers at retirement as has been seen on here a few times.

zagfles

jimi_man said:

Marcon said:

hugheskevi said:

pimento said:

..and I'm still not clear why they do it.  If I'd started work in April and a pay rise had been given to everyone in July, I would have received all of it not a pro-rata amount.  I'm not clear why a pension is different.

There are 2 key dates - when you leave service and when you start pension (and they may be different or they may be the same if you retire from active service). Your pension is inflation protected from the time its value is calculated upon leaving service.

Be aware that inflation protection (at least in virtually all private sector schemes) is limited. You don't get full inflation proofing, so don't expect to see double-digit increases, either while the pension is revaluing in deferment or once it is in payment, unless the scheme rules are considerably better than statutory requirements.

hugheskevi said:

If you do not draw pension immediately upon leaving, your pension entitlement is calculated as at last day of service and then revalued until you draw the pension. The revaluation ensures the pension retains its real value, value, subject to scheme rules until you draw your pension.

Pensions are not revalued until they start to be drawn. Increases in deferment are based on whole years, not years and part-years. See https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/ for a full explanation.

Really? My wife gets a statement every year (ok, it's online now) from the LGPS saying that her pension has been revalued with CPI to £xxxxx figure. Is that not the same thing?

Is it CARE or final salary? I think CARE schemes work differently, I think most posts above (inc mine) assumed final salary.

jimi_man

zagfles said:

jimi_man said:

Marcon said:

hugheskevi said:

pimento said:

..and I'm still not clear why they do it.  If I'd started work in April and a pay rise had been given to everyone in July, I would have received all of it not a pro-rata amount.  I'm not clear why a pension is different.

There are 2 key dates - when you leave service and when you start pension (and they may be different or they may be the same if you retire from active service). Your pension is inflation protected from the time its value is calculated upon leaving service.

Be aware that inflation protection (at least in virtually all private sector schemes) is limited. You don't get full inflation proofing, so don't expect to see double-digit increases, either while the pension is revaluing in deferment or once it is in payment, unless the scheme rules are considerably better than statutory requirements.

hugheskevi said:

If you do not draw pension immediately upon leaving, your pension entitlement is calculated as at last day of service and then revalued until you draw the pension. The revaluation ensures the pension retains its real value, value, subject to scheme rules until you draw your pension.

Pensions are not revalued until they start to be drawn. Increases in deferment are based on whole years, not years and part-years. See https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/ for a full explanation.

Really? My wife gets a statement every year (ok, it's online now) from the LGPS saying that her pension has been revalued with CPI to £xxxxx figure. Is that not the same thing?

Is it CARE or final salary? I think CARE schemes work differently, I think most posts above (inc mine) assumed final salary.

Final salary.

pimento

Thanks everyone. It is a DB scheme that's with a non-uk government. I've only ever seen a pension handbook issued in 2015 which doesn't give the full rules of the scheme.
The administrators are Barnett Waddingham and I've found them quite difficult to contact when I've had to.
I left the scheme in April 2019 and started taking my pension in April 2022.
I called BW yesterday and the person I spoke to couldn't answer my questions and advised me to email the questions which I did this morning.
I've had more information from this forum than I have ever had from either my employer, the pension trustees or the pension administrators.

pimento

xylophone said:

 I've been advised that our increase this year is being based on "CPI UN" rather than the RPI it has previously been based on.

What are the rules of your scheme in respect to the index to be applied when calculating increase to pension in payment? 

https://www.nortonrosefulbright.com/en/knowledge/publications/a2253861/pensions-briefing-rpi-and-cpi-ten-things-you-should-know

From April 2011, the then Government decided to switch to CPI rather than RPI to calculate increases in social security payments and public sector pension benefits. By 2013, the RPI was no longer considered compliant with international standards. On March 14, 2013 it was removed from designation as a "national statistic", though it continued to be used for government bonds and other purposes. The Consumer Prices Index including Housing (CPIH) was introduced on the same date, as a variant of CPI but including a measure of owner-occupiers' housing costs. The switch from RPI- to CPI-based (and subsequently CPIH-based) calculations was subsequently extended to the minimum statutory increases required for private sector pensions. However, the Government did not introduce an overriding or modifying statutory power allowing schemes to switch automatically to CPI (or CPIH)-linked indexation or revaluation where RPI was “hard-wired” or written into the scheme rules. Therefore, the impact of the statutory change on indexation and revaluation in private-sector schemes depends on each scheme's trust deed and rules.

The remainder of this briefing looks at how the Courts have answered various questions arising when schemes have attempted to switch to CPI instead of RPI to calculate increases.

This is exactly what's happening with our scheme.  The covering letter from the trustees said that they're switching to CPI while they take legal advice and will switch back to RPI if they legal advice decides they can't switch to CPI.  It's all becoming clear.