Deferred final salary pension annual increases

zagfles

philng said:

Just checked scheme rules.

So pension in payment is capped at 5% each year using RPI.

Pension in deferment is increased by a max of 4% using CPI compound.

Date of leaving was 30/6/16 and my NRD is 16/1/25. Does this mean there would be an optimum date to draw pension? 

That would depend on loads of things. Early/late retirement factors, inflation, what exactly your scheme rules are, they look more generous than statutory for post 2009 service. But it should be at least 5% cap for pre 2009 in deferment, is all your service after 2009?

philng

zagfles said:

philng said:

Just checked scheme rules.

So pension in payment is capped at 5% each year using RPI.

Pension in deferment is increased by a max of 4% using CPI compound.

Date of leaving was 30/6/16 and my NRD is 16/1/25. Does this mean there would be an optimum date to draw pension? 

That would depend on loads of things. Early/late retirement factors, inflation, what exactly your scheme rules are, they look more generous than statutory for post 2009 service. But it should be at least 5% cap for pre 2009 in deferment, is all your service after 2009?

Service is Jan 1985 to June 2016.

The_Fat_Controller

I finally found the section regarding deferred pensions for my scheme, as far as I know the trustees have not changed the index from RPI or imposed a cap.

Pension age in the scheme is 60.

sevenhills

philng said:

Scheme says increases 1st April but doesn’t state which date inflation figure used. I assume it  is September but with cap at 5% its immaterial anyway based on current inflation figure. 

You may be wanting to draw your pension because the increase will be way below inflation, but if you are getting a lump sum. Where will you invest that and will you make 5%?

arnoldy

Deferred DB schemes have some quirks. The pension value will be changed for each complete year in deferment and each calendar year in a "look up table". Overlaid on that will be the early retirement factors.

philng

sevenhills said:

philng said:

Scheme says increases 1st April but doesn’t state which date inflation figure used. I assume it  is September but with cap at 5% its immaterial anyway based on current inflation figure. 

You may be wanting to draw your pension because the increase will be way below inflation, but if you are getting a lump sum. Where will you invest that and will you make 5%?

I am not looking to take a lump sum from the main scheme. I have an AVC I can use for the Lump Sum.

The point I am trying to confirm is in periods of high inflation the Deferred Pension is likely to increase at a higher rate than the Pension I would receive if I draw it early.

philng

arnoldy said:

Deferred DB schemes have some quirks. The pension value will be changed for each complete year in deferment and each calendar year in a "look up table". Overlaid on that will be the early retirement factors.

So if I left the scheme 30/6/16 the pension value will adjust annually each year on 30/6? Making optimum time to draw just after that date each year?

The_Fat_Controller

@philng I very much doubt it, that would be an impossible scenario for administrators.

Pensions in payment are increased on a set date related to a previous inflation figure.

Expotter

From today's Daily Telegraph, RPI linked increases set to be replaced by CPIH from 2030, just what we need another drop in income to look forward to...

Pensioners to see up to 20pc wiped off income

High Court ruling sees battle to protect millions of pensioners from changes to inflation calculations fail

• The Daily Telegraph
• 2 Sep 2022
• By Jessica Beard SENIOR PERSONAL FINANCE REPORTER

Millions of pensioners will see as much as 20 per cent wiped off their retirement income after a court ruling delivered a blow to gold-plated company schemes. Pension scheme trustees yesterday lost a High Court battle to protect millions of their members from a change to inflation calculations that will leave them worse off in retirement. Experts last night warned it was another “unnecessary blow” to pensioners facing rocketing prices and a cost of living crisis.

MILLIONS of pensioners will see as much as 20 per cent wiped off their retirement income after a court ruling delivered a blow to gold-plated company schemes.

Pension scheme trustees yesterday lost a High Court battle to protect millions of their members from a change to inflation calculations that will leave them worse off in retirement. The legal challenge centres around the Government’s move to scrap the Retail Price Index (RPI) and increase salary-linked pensions every year in line with a less generous measure of inflation instead.

Experts last night warned it was another “unnecessary blow” to pensioners facing rocketing prices and a cost of living crisis.

Around 10.5 million people in the UK have private sector “defined benefit” pensions, the majority of which are linked to RPI.

However, the UK Statistics Authority has said that RPI, which is also used to push up rail fares and student loan interest rates, is “flawed” and should be replaced from 2030 with CPIH, a variant on the Consumer Prices Index, which includes homeowner costs. But the CPIH measure is typically at least one percentage point lower, meaning those with Rpi-linked pensions now stand to miss out on tens of thousands of pounds over the course of retirement.

The ruling means around £100billion of pension fund money will be lost to the Treasury because it is invested in government bonds that pay out in line with RPI.

Pension schemes trustees at BT, Marks & Spencer and Ford launched the judicial review, arguing that the change was unlawful, but did not reveal last night if they intended to appeal the judgment.

RPI inflation, which has been used as an official measure of inflation in the UK since 1956, currently stands at 12.3 per cent and CPIH at 8.8 per cent, according to the Office for National Statistics. Pension expert Jos Vermeulen, of fund shop Insight Investment, said that the gap highlighted the magnitude of how much pensioners will miss out on as a result of the ruling.

He said there had been “significant concerns” about the move, adding: “It was of no surprise that three UK defined benefit pension funds felt they had no choice but to challenge the Government’s decision. “With inflation surging many pensioners are already struggling and RPI reform represents an additional and entirely unnecessary blow,” he said.

Experts have estimated some retirees will be as much as 20 per cent worse off, and the average pensioners will lose between 10 per cent and 15 per cent.

The High Court estimated that the switch in inflation measures will reduce pensioners’ lifetime income by between 4 per cent and 9 per cent, with women suffering greater reductions.

The Government had considered bringing the switch forward to 2025 but former chancellor Rishi Sunak agreed that no changes will be made until 2030.

The state pension and public sector schemes have already been severed from the RPI measure. Estimates at the time were that the 2015 reforms to public sector pensions, including abandoning RPI, would save around £400 billion over 50 years.

The majority of company pension schemes that do still pay inflation linked pensions also have annual increases capped at 5 per cent.

zagfles

Personally I'm relieved we've got another 8 years of RPI, the ONS were pushing for RPI to be abolished much sooner.