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

Pensions_matter_2

I think the 2015 Order refers to zero percent, so that seems to tie in?

zagfles

Pensions_matter_2 said:

Thats interesting. I ignored the negative CPI figure for that year entirely. I have dug a bit deeper and the legislation refers to increases (or the maximum cap - 2.5/5% compounded - where this applies) only - it doesnt appear to envisage any negative CPI figure coming into the calculation. I take it that means its ignored. It may be the government has discretion in deciding about rounding up or down?

It's the change over the period of deferment, not the change in individual years that matters. That's why exceeding the cap in the odd year doesn't matter as long as average inflation isn't above the cap. It's the same for negative inflation. It's the start and end point that matter.

That means that negative inflation in the odd year is accounted for in the same way that inflation above the cap is accounted for. If overall inflation over the period is above the cap it's capped, if it's negative it's zero, but if you want to do it the hard way and compound the Sept CPI figures you clearly can't ignore negative years any more than capping individual years. Work it out on actual CPI (or RPI pre 2011) then top and tail the end result (ie check it doesn't exceed the cap, or isn't negative).

There've been a couple of negative years recently, 2015 and 2009, as you can see from the revaluation orders https://www.legislation.gov.uk/uksi/2021/1308/made  which show a lower figure from 2009 than 2010, and lower from 2015 vs 2016.

Pensions_matter_2

Thanks for setting this out. This is the comparison method I have used, so good to know its sounds about right! I still have doubts about using negative CPI figures in any calcs, as the legislation only refers to revaluation in terms of increases (which is reflected in the fact that the 2015 Order sets revaluation for that year at zero). It will not matter too significantly in the the scheme of things, and I will soon know how it all pans out when the next revaluation order is issued later this year! Thank you to all for commenting on this technical question!

zagfles

Pensions_matter_2 said:

Thanks for setting this out. This is the comparison method I have used, so good to know its sounds about right! I still have doubts about using negative CPI figures in any calcs, as the legislation only refers to revaluation in terms of increases (which is reflected in the fact that the 2015 Order sets revaluation for that year at zero).

Of course it does, because negative overall inflation over the period isn't applied. Just like if a single year was above the 2.5/5% cap it'd show as 2.5/5% for that single year. It's the overall change that matters, not individual years.

Now look at the 2016 order and compare the 1st January 2015 – 31st December 2016 rate with the 1st January 2016 – 31st December 2016 rate. You get 1% for 2016 only (Sept CPI was 1%), you get 0.9% for 2 years 2015 & 2016 (Sept 2015 was -0.1%). Still have doubts?

Pensions_matter_2

Ah, I see, and thank you for persevering with me on this. Much appreciated and all make sense!

Pensions_matter_2

Looks like latest revaluation Order is just out, for those who are interested.

https://www.legislation.gov.uk/uksi/2022/1229/article/2/made

Pat38493

Pensions_matter_2 said:

Looks like latest revaluation Order is just out, for those who are interested.

https://www.legislation.gov.uk/uksi/2022/1229/article/2/made

On another thread, I remember reading that the exact date of deferral of the pension is relevant for this also but I didn't see that mentioned on this resurrected thread?

My understanding was for example if your pension was deferred on 1st June 2005, if you took your DB benefit on 1st Jan 2023, they would actually use the 62.8% number but if you took the benefit on 1st August 2023, they would use the 67.8% number or something like that?  Is that correct or did I misunderstood that at the time - the message seemed to be that you are almost always better to take your DB pension after the anniversary date of deferral?

In this thread is seems ot say that it just rolls over by year but this was contrary to the other thread I was using.

Pensions_matter_2

My (limited!) understanding is you can only count complete/full deferred years, counting up to date you reach normal pension age (or take your benefits if earlier) when working out which revaluation factor(s) from the table to use, and you need to count the number of full years backwards, starting from the date you decide to take your benefits. Im not an expert on this so happy to be corrected by those who are!

Pensions_matter_2

Your scheme should be able to confirm and may be always best to check with them aswell.

zagfles

Pat38493 said:

Pensions_matter_2 said:

Looks like latest revaluation Order is just out, for those who are interested.

https://www.legislation.gov.uk/uksi/2022/1229/article/2/made

On another thread, I remember reading that the exact date of deferral of the pension is relevant for this also but I didn't see that mentioned on this resurrected thread?

My understanding was for example if your pension was deferred on 1st June 2005, if you took your DB benefit on 1st Jan 2023, they would actually use the 62.8% number but if you took the benefit on 1st August 2023, they would use the 67.8% number or something like that?  Is that correct or did I misunderstood that at the time - the message seemed to be that you are almost always better to take your DB pension after the anniversary date of deferral?

In this thread is seems ot say that it just rolls over by year but this was contrary to the other thread I was using.

In my first reply: "Partial years usually are lost. You only get whole years, "