Are your DB pensions keeping pace with cost of living?

Askfirst

I am looking at taking my deferred DB pension shortly, although still a few years short of normal retirement age. I know what the yearly revaluations have been since leaving the employer, e.g. 7.5% pa for the GMP part, not too shabby.

However I was not prepared for how mean the yearly increases have been for those who have already retired. These have not kept pace with inflation and meant a very real erosion in buying power for retirees on what was supposed to be a gold standard DB pension. It seems to be a common theme in the industry sector, in which share prices have soared in recent years.

Does anyone have any comments on how their pensions are being increased year on year?

JoeCrystal

It would be based on the scheme rules and the minimum required by legislations.

hugheskevi

The PPF Purple Book shows indexation rules across private sector schemes.

Linton

Is you pension inflation-matching up to some % cap as defined by the scheme rules?  Inflation rates over the past couple of years have been much higher than any commonly occuring cap.

If your pension is capped at say 3% then you lose 7% in a year of 10% inflation and never recover it.

Share prices are irrelevent, the scheme rules over-ride anything else.

Ayr_Rage

I took my pension at 56, 9 years ago

The main pension gets an annual, uncapped, RPI increase.

The pension addition paid until I reach SPA is increased by uncapped CPI.

The increase is based on the January figures and paid in the following April.

I am a happy bunny.

xylophone

if your GMP is revaluing at Fixed Rate of 7.5% then presumably you were working in the private rather than Public Sector.

You say that you are intending to claim this pension earlier than Scheme Normal Retirement Age.

Presumably you have checked on the actuarial reduction for taking your scheme pension early.

Are you under age 60 (if female) or 65 (if male)?

If so, have you checked on how your pension will increase in payment from age 60/ 65?

And do you have any "surprises" waiting in this respect?

You don't name your scheme (and the rules of DB schemes differ from scehme to scheme) but you might find this of inerest

https://forums.moneysavingexpert.com/discussion/comment/80778969#Comment_80778969

Simes122

Yes my biggest db pension  is based on the cpi rate in September, uncapped, and paid in April. 10.5% and 6.7% in the last two years, so happy.  My smaller one is capped at 5% so not as good this last two years but ordinarily ok.  My last two years increases on the bigger pension exceed the total monetary annual value of the smaller one so while the cap can be significant it’s not such a big deal for me.

huw01

Simes122 said:

Yes my biggest db pension  is based on the cpi rate in September, uncapped, and paid in April. 10.5% and 6.7% in the last two years, so happy.  My smaller one is capped at 5% so not as good this last two years but ordinarily ok.  My last two years increases on the bigger pension exceed the total monetary annual value of the smaller one so while the cap can be significant it’s not such a big deal for me.

Think the LGPS is based on the September CPI rate from what I could see

Askfirst

xylophone said:

if your GMP is revaluing at Fixed Rate of 7.5% then presumably you were working in the private rather than Public Sector.

You say that you are intending to claim this pension earlier than Scheme Normal Retirement Age.

Presumably you have checked on the actuarial reduction for taking your scheme pension early.

Are you under age 60 (if female) or 65 (if male)?

If so, have you checked on how your pension will increase in payment from age 60/ 65?

And do you have any "surprises" waiting in this respect?

You don't name your scheme (and the rules of DB schemes differ from scehme to scheme) but you might find this of inerest

https://forums.moneysavingexpert.com/discussion/comment/80778969#Comment_80778969

Private sector indeed and yes I'm under 65. The increases once pension is in payment range from meagre for GMP (some of which not increased at all) and "discretionary" for the excess, such were the rules at the time. The problem is that in practice, "discretionary" really means "as little as the company can get away with". .

Your link about franking was fascinating and a whole new aspect that I had not considered earlier. I read it twice and I haven't got my head around it or if it applies to my scheme. It certainly hasn't been mentioned by the administrator.

What I am more familiar with is the concept of actuarial reduction, but there is still a question mark over that. Earlier quotations for ER were definitive on what it would be for each year before NRD. However, more recent quotations don't mention it and I have found separate sources of scheme literature suggesting either it doesn't apply at all from 60-65, or, if it does, it only affects pension benefit accrued to March 1990. I have pointed this out to the administrator on the phone but I can't get an answer in writing. 

xylophone

The increases once pension is in payment range from meagre for GMP (some of which not increased at all) and "discretionary" for the excess, such were the rules at the time. The problem is that in practice, "discretionary" really means "as little as the company can get away with". .

It appears that you are considering bringing your pension into payment before normal scheme pension age and pre GMP age.

In one scheme I know,  (which uses "full rate" not "fixed rate" revaluation of GMP) any actuarial reduction would be applied and 

the annual pension amount would reflect this.  The pension would include the GMP.

The pension would then increase under scheme rules (uncapped RPI in this particular case) up to GMP age,

At that point, the pension would be split into its component parts, pre 88 GMP revalued to GMP age, post 88 GMP revalued to 

GMP age and the excess over GMP.

From then on, no increase would be paid on pre 88 GMP, up to 3% CPI on post 88 GMP and uncapped RPI on the excess.

What will happen in your case?

Are you saying that once you take your pension and up to GMP age the likelihood is that you will receive  "as little as the 

company can get away with" on the whole pension until GMP age when the pension will be split out as above?

There is then the question of whether you will be affected by franking.

See this ( but this poster did take his pension  a good nine years before Scheme NRA of 60 so some fourteen years short of GMP age).

https://forums.moneysavingexpert.com/discussion/6412759/barclays-1964-pension-payment-change-at-gmp-age-for-anyone-taking-pension-at-erd

It seems to me that you must clarify whether or not an actuarial reduction will be applied if you take the pension pre scheme 

NRD - if you put the question in writing then the Administrator will  reply in writing?

Askfirst

xylophone said:

It appears that you are considering bringing your pension into payment before normal scheme pension age and pre GMP age. 

In one scheme I know,  (which uses "full rate" not "fixed rate" revaluation of GMP) any actuarial reduction would be applied and the annual pension amount would reflect this.  The pension would include the GMP. 

The pension would then increase under scheme rules (uncapped RPI in this particular case) up to GMP age,

At that point, the pension would be split into its component parts, pre 88 GMP revalued to GMP age, post 88 GMP revalued to GMP age and the excess over GMP.

From then on, no increase would be paid on pre 88 GMP, up to 3% CPI on post 88 GMP and uncapped RPI on the excess.

What will happen in your case?

Are you saying that once you take your pension and up to GMP age the likelihood is that you will receive  "as little as the company can get away with" on the whole pension until GMP age when the pension will be split out as above?

There is then the question of whether you will be affected by franking.

See this ( but this poster did take his pension  a good nine years before Scheme NRA of 60 so some fourteen years short of GMP age).

https://forums.moneysavingexpert.com/discussion/6412759/barclays-1964-pension-payment-change-at-gmp-age-for-anyone-taking-pension-at-erd

It seems to me that you must clarify whether or not an actuarial reduction will be applied if you take the pension pre scheme 

NRD - if you put the question in writing then the Administrator will  reply in writing?

Thanks for the link, that's the one I read through and will probably have to go through it a few more times before I understand whether I will benefit from anti-franking legislation. 

Responding to your questions

1. I don't know what increases if any will be added to the GMP elements if taken before NRD. Post NRD and once in payment, the split GMP increases are as you say. Unfortunately, for pensions started or deferred prior to 1997, increases are at the company's discretion and I'm told they have not been keeping pace with prices.
   
   
2. The administrator has so far failed to answer written questions and provided no working to support their quotations.