deferred DB pension Revaluation. Are the 5%, 2.5% limits compounded? Also partial years.

NedS

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

german_keeper

NedS said:

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

Is this compounded cap standard practice? My wife has a deferred DB private sector pension, and whilst the website gives the details of increases in deferment it doesn't specifically confirm this. 

NedS

german_keeper said:

NedS said:

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

Is this compounded cap standard practice? My wife has a deferred DB private sector pension, and whilst the website gives the details of increases in deferment it doesn't specifically confirm this. 

I believe so, as it should fall under the statutory minimum of the Occupational Pensions (Revaluation) Order:

https://www.legislation.gov.uk/uksi/2021/1308/made

and if you view the two columns (left hand being 5%, right hand being 2.5%), you will note that in some years (e.g, 2011-2012), the increase is more than 2.5% (or 5%), going from 19.1% to 25.3%, so an increase of 6.2% which is above either of the caps.

At the very least a private DB pension in deferment must apply the statutory minimum (so 2.5% CPI since 2009), although of course they are free to be more generous if they so choose.

german_keeper

NedS said:

german_keeper said:

NedS said:

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

Is this compounded cap standard practice? My wife has a deferred DB private sector pension, and whilst the website gives the details of increases in deferment it doesn't specifically confirm this. 

I believe so, as it should fall under the statutory minimum of the Occupational Pensions (Revaluation) Order:

https://www.legislation.gov.uk/uksi/2021/1308/made

and if you view the two columns (left hand being 5%, right hand being 2.5%), you will note that in some years (e.g, 2011-2012), the increase is more than 2.5% (or 5%), going from 19.1% to 25.3%, so an increase of 6.2% which is above either of the caps.

At the very least a private DB pension in deferment must apply the statutory minimum (so 2.5% CPI since 2009), although of course they are free to be more generous if they so choose.

Thanks for that Ned. The GMP increases by 6.25% pa. The remainder is capped at 5% pa but increases by RPI to 31 December 2010 and CPI afterwards. I am guessing that over those periods of time the average will be less than 5%.

We are actually waiting for a reply to give us the updated figures. But that was a couple of months ago when my wife was struggling to find a job and we were looking at the option of taking the pension early. She has a job now which she quite likes so no urgency, will just wait for the reply.  

artyboy

NedS said:

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

Thanks - that then could be a consideration as to when I start to take it, because if I'm still getting the benefit of a >5% revaluation uplift then it wouldn't make sense to take it and cap myself at 5% from then on.

NedS

german_keeper said:

NedS said:

german_keeper said:

NedS said:

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

Is this compounded cap standard practice? My wife has a deferred DB private sector pension, and whilst the website gives the details of increases in deferment it doesn't specifically confirm this. 

I believe so, as it should fall under the statutory minimum of the Occupational Pensions (Revaluation) Order:

https://www.legislation.gov.uk/uksi/2021/1308/made

and if you view the two columns (left hand being 5%, right hand being 2.5%), you will note that in some years (e.g, 2011-2012), the increase is more than 2.5% (or 5%), going from 19.1% to 25.3%, so an increase of 6.2% which is above either of the caps.

At the very least a private DB pension in deferment must apply the statutory minimum (so 2.5% CPI since 2009), although of course they are free to be more generous if they so choose.

Thanks for that Ned. The GMP increases by 6.25% pa. The remainder is capped at 5% pa but increases by RPI to 31 December 2010 and CPI afterwards. I am guessing that over those periods of time the average will be less than 5%.

We are actually waiting for a reply to give us the updated figures. But that was a couple of months ago when my wife was struggling to find a job and we were looking at the option of taking the pension early. She has a job now which she quite likes so no urgency, will just wait for the reply. 

Just considering the increased from Jan 2011 (CPI, capped 5%), the revaluation table shows an increase of 25.3% for that 11 year period. The maximum it could have increased under a compounded 5% cap would be 1.05^11 = 1.71 (or 71%), or 1.05^12 by next April (79.5%) so there is plenty of headroom to accommodate a ~10% increase.

Purely considering revaluations, taking the pension early now, during a period of high inflation, would be a bad move as the 5% cap would then apply annually to any increases to the pension in payment, and she would lose the ability to absorb the currently high inflation within the compounded cap. If she can wait to draw the pension until inflation has dropped closer to 5% (or below), she would benefit. However, she will no doubt have other factors to consider, other than just revaluations and inflation.

german_keeper

NedS said:

german_keeper said:

NedS said:

german_keeper said:

NedS said:

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

Is this compounded cap standard practice? My wife has a deferred DB private sector pension, and whilst the website gives the details of increases in deferment it doesn't specifically confirm this. 

I believe so, as it should fall under the statutory minimum of the Occupational Pensions (Revaluation) Order:

https://www.legislation.gov.uk/uksi/2021/1308/made

and if you view the two columns (left hand being 5%, right hand being 2.5%), you will note that in some years (e.g, 2011-2012), the increase is more than 2.5% (or 5%), going from 19.1% to 25.3%, so an increase of 6.2% which is above either of the caps.

At the very least a private DB pension in deferment must apply the statutory minimum (so 2.5% CPI since 2009), although of course they are free to be more generous if they so choose.

Thanks for that Ned. The GMP increases by 6.25% pa. The remainder is capped at 5% pa but increases by RPI to 31 December 2010 and CPI afterwards. I am guessing that over those periods of time the average will be less than 5%.

We are actually waiting for a reply to give us the updated figures. But that was a couple of months ago when my wife was struggling to find a job and we were looking at the option of taking the pension early. She has a job now which she quite likes so no urgency, will just wait for the reply. 

Just considering the increased from Jan 2011 (CPI, capped 5%), the revaluation table shows an increase of 25.3% for that 11 year period. The maximum it could have increased under a compounded 5% cap would be 1.05^11 = 1.71 (or 71%), or 1.05^12 by next April (79.5%) so there is plenty of headroom to accommodate a ~10% increase.

Purely considering revaluations, taking the pension early now, during a period of high inflation, would be a bad move as the 5% cap would then apply annually to any increases to the pension in payment, and she would lose the ability to absorb the currently high inflation within the compounded cap. If she can wait to draw the pension until inflation has dropped closer to 5% (or below), she would benefit. However, she will no doubt have other factors to consider, other than just revaluations and inflation.

The revaluation terms when in payment are different. GMP is CPI capped at 3%, non GMP is RPI capped at 10%. As 80% of the pension is non GMP I think they are probably very generous terms.

Taking the pension early is now on the backburner though. She seems to be quite enjoying this new job. It's a 1 year contract but they have suggested there will be every chance of renewal and she thinks she might accept it. Only 20 hours at minimum wage but at least it's not zero hours contract. With my pension it's enough for us so looking like she will just leave the DB till she is 60 in 3 years time.

She has only done part time since our eldest was born 27 years ago and I don't think she is quite ready to retire. Me on the other hand, after 40 years in the Civil Service I couldn't wait to jump ship. I'm quite enjoying being a "kept man".  

SarahB16

NedS said:

artyboy said:

zagfles said:

The revaluation cap is on compounded years, so eg the odd year of high inflation year will not be capped as long as the overall inflation over the period of deferment doesn't exceed the cap.

Partial years usually are lost. You only get whole years, and which years can make a difference (it changes at the turn of the year so the pension can rise and fall on 1st Jan).

Those are the statutory rules, the scheme could be more generous, but I don't think most are (some will use RPI and so be better than the CPI used in revaluation orders).

See this thread https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

Interesting thread and one that I'm just getting my head around. I have a small DB pension with a deferment date of 15 September 2008 (a date that may be familiar to any finance professionals here!). Interestingly the scheme closed some 10 years before but benefits were preserved and it would have been based on my final salary at the 2008 date.

Revaluation is 5% capped, but CPI has been nowhere near that over the last 14 years. My policy does not make it at all clear that revaluation is done at an overall level between deferment and when I take it, which will be at least 20 years later.

However if that is the statutory rule, then a few years of high inflation could actually bump it up considerably! It's almost like having unused allowance from previous years that can be called on...

Yes, over a long period of deferment, hopefully any short periods of high inflation will be absorbed within the compounded cap. Once the pension moves into payment, the cap is then applied annually.

I am also finding this thread extremely interesting and it has taught me something that I didn't know re the compounding of increases as I presumed they were capped each year as opposed to periods of high inflation also being included within the compounded cap.  

I will reach the age of 50 later this year so will telephone the pension provider of a final salary pension scheme that I left in 2008 requesting a forecast annual pension amount as if I were to take it at 55 (I have no intention of doing that but wish to have an up to date forecast) and I intend to ask them to confirm my final salary deferred pension with them has a compounded 5% or RPI rate.  

If I could just check on here though please, I have the following in the letter I received from them (June 2022) when I requested the information they had regarding my pension and included is the following:  

   -   Former Scheme pension will be increased by the lesser of 5% per annum, or the rate of increase in RPI over the period of deferment.  

   -   Pension built up in XXX DB will be increased each 6 April following the date you leave until the date it is paid to help protect it against inflation.  The increase will be linked to the annual increase in the Retail Price Index (RPI) at the previous 31 December, up to a maximum of 5% per annum.  

I left this scheme on 4 January 2008 but will post again on here nearer the time regarding when would be best date to begin drawing on this scheme but it would appear to be just after 6 April (but I will check nearer the time of drawing this pension that the Former Scheme pension also has the increase applied on 6 April too).  

Does the wording that I have highlighted in bold above indicate that the two elements of the pension that I have will both be compounded?   

Thank you very much for any help.  

Pensions_matter_2

I hope its ok to hijack this thread to ask a further very technical question - when working out the compounded maximum limit possible for revaluation (applying 2.5% or 5%, as the case may be), is the figure rounded up or down to arrive at the final figure - for instance, if the cumulative compounded figure arrived at over x number of years was, say, 13.378, should this be rounded up (13.39) or down (13.37) when working out if the actual inflation figures over the period exceed or do not exceed this limit. Hope that makes sense! Its kind of relevant given this years CPI figure (applied if retiring next year) is likely to be very high.

Pensions_matter_2

Oops - I mean rounded up to 13.38 or …!