Pension and Pension Increase Questions

Scott2411

I'm trying to get an understanding of the Pension Increase rules. I've looked at previous treads but cant find what I'm looking for,

Assumption 1: I leave the service when 55 in November but defer any withdrawals until 60 when it becomes payable without any reduction.

Q1: Do they calculate what would be my equivalent pension at the time of leaving the service based on the previous 12 months using the 91 day step back rule ?

Q2: Do they then increase this pension figure each April in line with the previous September’s defined CPI figure

Q3: Is the first CPI rise  impacted as I leave in November based on their example below which is shown on the Civil Service Web Page  [although Im not technically retiring or does this only happen when you declare taking you pension]?

Example:

You retire in mid-October with an annual pension of £7,500.

The following April, the cost-of-living increase is 3.5%.

As you retired exactly halfway through the relevant 12-month period, the pension is increased proportionately (that is, by one half of the total increase – 1.75%).

During the second year, the cost of living increase is 4.2%. Your annual pension becomes £7,631.25 after six months and £7,951.76 a year later.

 

 

hugheskevi

Assume you are talking about a Civil Service Classic scheme pension.

Q1: Do they calculate what would be my equivalent pension at the time of leaving the service based on the previous 12 months using the 91 day step back rule ?

A deferred pension award is calculated based on your length of service and pensionable earnings at the date of leaving. The highest pensionable earnings is calculated using the 91 day step back rule to cover the previous 3 years.

Q2: Do they then increase this pension figure each April in line with the previous September’s defined CPI figure

Each April the Pension Increase is applied. This is as determined by HMT, who currently use the previous September's CPI figureas their preferred measure of inflation. HMT may change their preferred measure of inflation in future.

Q3: Is the first CPI rise  impacted as I leave in November based on their example below which is shown on the Civil Service Web Page  [although Im not technically retiring or does this only happen when you declare taking you pension]?

You will receive a partial increase for the first uprating, reflecting the period between date of leaving and the subsequent 31 March.

HMT publishes revaluation tables at this link, updated each year.

Scott2411

Thanks hugheskevi,
Was really battling to understand the reason for not getting full pension accredited if you leave mid year but I believe it could be that you’ve got the salary increase for the months up to the point of leaving and that’s included as part of your pension calculation. Hence you only get a proportioned increase for remainder of months. 

If that’s the case it’s a little unfair as the wage rises year on year are substantially less that the cost of living increase accredited to pensions. Eg 2023 : 4.5% wage rise instead of 10.1% cost of living increase. 

Would I have been able to leave the scheme (rather than it getting parked and using increased salaries increases and just amassed the cost of living increase on the pension instead. I know if I was to get a decent promotion that outstripped the pension increases and was in position for a year then this wouldn’t be a good idea but it’s unlikely that I’m going to bother with that now. 

Obviously any small increase also increases the lump sum which I’d need to factor in but it doesn’t suggest it make a big heap of difference

…….Or am I missing something?

jamesperrett

As I understand it, if your highest year comes before the year that you leave then that figure will be uprated from the time that you earned it. In my case, as the best earnings period ended in March, it was uprated twice before I retired in the September of the following year.

hugheskevi

Scott2411 said:

Would I have been able to leave the scheme (rather than it getting parked and using increased salaries increases and just amassed the cost of living increase on the pension instead. I know if I was to get a decent promotion that outstripped the pension increases and was in position for a year then this wouldn’t be a good idea but it’s unlikely that I’m going to bother with that now. 

Obviously any small increase also increases the lump sum which I’d need to factor in but it doesn’t suggest it make a big heap of difference

…….Or am I missing something?

Yes - you could have switched to the Partnership pension scheme, which would entail leaving the classic scheme (and alpha scheme as well) and your classic pension would have been calculated based on your last day in the scheme prior to switching to Partnership.

Due to pay freeze/pause/restraint older classic members may have been better off to have left the scheme as they approached retirement, and taken CPI increases on a deferred pension award rather than remain in the scheme. Many members fairly close to retirement do leave the scheme due to this feature when pay increases are expected to be lower than inflation, although thought also needs to be given to death in service and ill health benefits associated with active service.

jamesperrett said:

As I understand it, if your highest year comes before the year that you leave then that figure will be uprated from the time that you earned it. In my case, as the best earnings period ended in March, it was uprated twice before I retired in the September of the following year.

This is correct, although note that if the pensionable earnings figures are the scheme (ie a pay freeze) then it is the most recent figure that is used, and hence that would not be adjusted.

Scott2411

thanks everyone. Totally get it. Looks to me that most years the pay rise is below inflation.