Revaluation of non-GMP - checking details

af1963

Checking that a pension administrator is calculating correctly.

Pension deferred December 1994 and claimed August 2022  at normal retirement age for non-GMP (details still being sorted out retrospectively after long delays and other miscalculations)

When re-valuing non-GMP benefits, they are quoting a revaluation factor of 92% (multiplier of 1.92) which seems to come from the pension revaluation order for 2021, relating to revaluation from 1995 up till the end of 2021:

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

Is this correct ?  

It seems to only count the complete calendar years from 1995 to 2021 which  looks like it gives an increase for 1995 but not for 2022

Does that mean for example that a pension deferred on Jan 2nd 1995 and claimed on Dec 30th 2022 would get inflation increases for neither 1995 nor for 2022 ?

Or someone deferring on Jan 2nd 2022 and claiming on Dec 30th 2023 would get no inflation revaluation at all because neither calendar year is complete ?

xylophone

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

af1963

Yes, thanks, I'd seen that one.  It's not obvious ( at least to me ) what is meant when it talks about "complete years"  . 

You get a different factor if you read it as referring to the complete years counting forward from the date of deferral  ( in the case I'm looking at, from Dec 1994 to Dec 2021 ) ; the complete years counting back from the date when the pension is taken (in this case, Aug 1995 to Aug 2022 ); or the way the administrators are interpreting, ignoring the start and finish years 1994 and 2022 entirely and only counting the complete calendar years between 1995 and 2021.

Seems odd ( but not impossible, given the other quirks of the rules) that you could have a pension deferred for a couple of days short of two years, as in the final scenario I posed, Jan 2nd 2022 to Dec 30th 2023 but receive no revaluation increase.  But if you deferred on Dec 30th 2022 and claimed on Jan 2nd 2024, you'd have the pension deferred for a couple of days over one year and you *would* get an increase.  Is that correct ? 

 

Marcon

af1963 said:

Yes, thanks, I'd seen that one.  It's not obvious ( at least to me ) what is meant when it talks about "complete years"  . 



 

I wonder if you stopped reading too soon?! If so, reading on might help, since I think this [see below] does answer your question:

Revaluation of benefits in excess of Guaranteed Minimum Pension

Preserved benefits in excess of Guaranteed Minimum Pension (GMP) must be increased for each complete year in the period of deferment.  The increase applied is notified each year when the Secretary of State makes an Occupation Pensions (Revaluation) Order (known as Section 52a orders).  Each revaluation period begins on a 1 January and ends on the 31 December prior to the order coming into effect.

The factor to apply for a preserved member retiring in 2012 will be that for which the revaluation period contains the same number of complete years as the period of deferment.  If we take the following scenario*

• member's date of leaving is 30 January 2004
• normal retirement date (NRD) 5 January 2012

There are seven complete years between date of leaving and normal retirement date.  The target is therefore the 2012 and 7 Years in the table below.  In this example, the increase applicable is 24.1%

af1963

The example given on the BW site doesn't match the format of the published revaluation orders, which confuses things ( at least for me !) 

The 24.1% figure in the BW example appears in the 2011 revaluation order (not the 2012 one as their text states) and the table in the revaluation order isn't presented as "7 years" but as a range of dates.

The wording about "each revaluation period begins on a 1 January and ends on 31 Dec" also still seems ambiguous.  That sentence could still be true if the correct process was any of the following (the first is how I interpreted it originally when I read it ):

1: count back complete years from the pension start date, until the anniversary date that falls immediately after the deferment date   ( i.e. above, go back from 5 Jan 2012 to 5 Jan 2005 ). Your Revaluation Period" starts from that date

2: In the revaluation order for the year the pension is paid (2012) , find the row containing your Revaluation Period starting date (2005).  This gives a value of 26.9% to use.

Now that's different to the figure in Barnett Waddington's table.  Wonder why ... so I look for other ways to interpret:

If we read it as:

1: "count forward complete years from deferment date to the anniversary date just before reaching retirement age". that takes us to 30th Jan 2011 as the latest date to include. Your revaluation period starts on the deferment date (20 Jan 2004)and finishes on the anniversary before the pension date  (ends 30 Jan 2011)

2: look at the revaluation table for the year containing that anniversary (2011) and find the row for the start date of your period (Jan 2004) , we get a value of 28% to use.

That's still different to the BW table.

So the other option is presumably correct - and only whole calendar years count - but I don't think that's clear from the actual text explanation.


I see there's also an explanatory text in the revaluation orders themselves whcih reads ( in the 2022 order): 

For the purpose of the revaluation of benefits payable to or in respect of persons who attain their scheme’s normal pension age in 2023, and as required by paragraph 2 of Schedule 3 to that Act, this Order specifies the necessary revaluation percentages for each of the revaluation periods between 1st January 1986 and 31st December 2022.

But again, I think that's ambiguous.  It clarifies that the 2022 order should be used during 2023 so you wouldn't get any revaluation for any of 2023, (and so the 2011 order should be used during 2012 in the example) but it doesn't make clear whether you only get the revaluation for a full calendar year ( look up Jan 2005 to get 24.1%), or a full year from the date of deferment ( look up Jan 2004 to get 28%)

Don't want to bore on and I think I have  my answer.  I do still think it's odd that someone deferring for 2 years minus 2 days might get no uplift while someone deferring for 1 year plus 2 days could.  But that's pensions ... 

( And, on average, it will cost each DB deferred pensioner a year's worth of index-linking.  Worst for those with birthdays in December !)