Are your DB pensions keeping pace with cost of living?

Tightboy

Here’s the situation with my DB pension that was deferred from 2004. I was enrolled in this DB pension in 1983 through to 2004.

I started drawing it in Sept 2022 at the age of 61, there were no actuarial reductions because my scheme gives a full pension at age 60 and a 7% accelerator per year if taken after age 60. I took it as is with no tax free lump sum.

It qualifies for a review and increase each April but… there was a sting in the tail from my POV as it’s broken down into these elements as follows;

 

Non qualifying pension built up before 1st April 1997

Qualifying pension built up before 1st April 1997

Pension built up after 1st April 1997

Increasing additional voluntary portion (AVC)

 

The corresponding % increases I received in the first year were as follows

 

Non qualifying pension built up before 1st April 1997  = 0%

Qualifying pension built up before 1st April 1997         =3.33%

Pension built up after 1st April 1997                               =5.0%

Increasing additional voluntary portion (AVC)               =5.0%

 

However, because I had started drawing it in the previous September, I was only given a pro-rata % of the above percentages which came to an overall increase of approx. 1.2%

 

This April as I am now 18 months into payment the increase in April 2024 was the same percentages as above and worked out to an overall 2.4% so it’s hardly keeping up with inflation.

 

The point I’m trying to make is to really research your situation, I was a little unaware of the fact that in my case the “Non qualifying pension built up before 1st April 1997 “ gets no increase and at the moment it’s the largest chunk of my DB pension. 

I have estimated that the other elements will overtake this part in approx. 5 years’ time. - if they keep applying the same % growth figures.

Fortunately for me, I’m still working full time and stuff as much as possible into my current DC works pension to keep me a basic 20% tax payer using salary sacrifice. 

So at the moment I would say no, to the OP’s original question of “Are your DB pensions keeping pace with cost of living?”

xylophone

“Non qualifying pension built up before 1st April 1997 “ 

Whether or not increases in payment on these benefits are given is very much scheme dependent (as of course are other things, 

clawback, franking, dependants' pensions etc).

https://commonslibrary.parliament.uk/research-briefings/sn05656/

There is no requirement for schemes to provide indexation of pension rights accrued before April 1997.

Schemes may offer more generous indexation than required through legislation.

In the scheme to which I refer above, up to GMP age the whole pension (whenever accrued) revalues under scheme rules 

(uncapped RPI)  and after GMP age the whole excess over GMP revalues under scheme rules.