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DB pension Inflation protection


My deferred DB pension is protected from inflation (part at 5% part at 3.5%), and when I looked into it a couple of years ago it could withstand 3 or 4 years of 10% inflation, due to the protection being cumulative since deferment (not year by year).  What is that type of protection called ?

The question I want to ask my pension administrator is whether the built in buffer that remains after the recent inflation gets reset to zero when my pension goes into payment. 

The administrator has been useless at answering even simple questions up to now, so I at least need to ask using the correct terminology.

Or maybe someone knows the (usual or specific) answer to this. It's a BAE Systems pension.



  

Comments

  • Hoenir
    Hoenir Posts: 5,740 Forumite
    1,000 Posts First Anniversary Name Dropper
    edited 11 November 2024 pm30 1:34PM
    Have you read the pension scheme booklet?  This will clearly set out the scheme rules. 
  • DB schemes are all slightly different, so I can only answer "in general" - as you say, your scheme administrator is the one to ask.

    The USUAL position is that the "cumulative since deferment" indexation ends when you begin to draw your pension.  In retirement pension increases are USUALLY calculated on a year by year basis.  So for example, if the scheme gives increases based upon RPI inflation up to 5% and the RPI is 3%, 10%, 4% your increases will be 3%, 5%, 4%.

    I would ask the questions "After I retire, how will pension increases on my pension be calculated?   If there is an annual cap on some or all of the pension increases what happens if inflation goes above the cap, for example if we have another year of 10%+ inflation, will there be any kind of 'catch-up' increases when inflation goes below the cap again?" 
  • My DB pension has the same protection whilst deferred and in payment. 15 years RPI max 5%, 11 years RPI 2.5%
    It’ll be in the scheme booklet.
  • I've read the booklet, and for the deferment period it says CPI up to 5% compound.  And for in-payment it is RPI max 5% (for most of it, I think*) no mention of compound.

    So I am a bit worried now, given that we all know they are going to inflate the money supply. They might aim for something like 4% but I don't think they have the skill to not get it wrong.  

    *half of it was transferred in rather than earned, it is listed separately to the 3 separate pots that are broken down by time period. Hopefully as it was transferred in in 2001 it will be in the pre 2006 pot with 5% protection.
  • molerat
    molerat Posts: 33,554 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    optoutDB said:
    I've read the booklet, and for the deferment period it says CPI up to 5% compound.  And for in-payment it is RPI max 5% (for most of it, I think*) no mention of compound.

    So I am a bit worried now, given that we all know they are going to inflate the money supply. They might aim for something like 4% but I don't think they have the skill to not get it wrong.  

    *half of it was transferred in rather than earned, it is listed separately to the 3 separate pots that are broken down by time period. Hopefully as it was transferred in in 2001 it will be in the pre 2006 pot with 5% protection.
    They won't work out the deferred pension each year but will have a table which shows the compounded uprating between date of deferment and now.  Once in payment it will be uprated each year.  The government publish the table for public service schemes https://www.gov.uk/government/publications/public-service-pensions-increase-2024 and your administrators will have similar based on their scheme rules.


  • Marcon
    Marcon Posts: 12,996 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper Combo Breaker
    optoutDB said:
    I've read the booklet, and for the deferment period it says CPI up to 5% compound.  And for in-payment it is RPI max 5% (for most of it, I think*) no mention of compound.

    So I am a bit worried now, given that we all know they are going to inflate the money supply. They might aim for something like 4% but I don't think they have the skill to not get it wrong.  

    *half of it was transferred in rather than earned, it is listed separately to the 3 separate pots that are broken down by time period. Hopefully as it was transferred in in 2001 it will be in the pre 2006 pot with 5% protection.
    You can't make that assumption - transfers in can be handled in various ways. You need to check with the administrators.
    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • Marcon said:
    optoutDB said:

    *half of it was transferred in rather than earned, it is listed separately to the 3 separate pots that are broken down by time period. Hopefully as it was transferred in in 2001 it will be in the pre 2006 pot with 5% protection.
    You can't make that assumption - transfers in can be handled in various ways. You need to check with the administrators.
    I will be asking :smile:

    This is all steering me towards taking the pension early as possible, and front loading it (lump sum and stepped [higher payout before state pension age]).  This is based on the assumption that I can beat inflation (9.7% real returns over 8 years), and the fact that the DB pension can only equal or fail to beat inflation.
  • AlanP_2
    AlanP_2 Posts: 3,499 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    optoutDB said:
    Marcon said:
    optoutDB said:

    *half of it was transferred in rather than earned, it is listed separately to the 3 separate pots that are broken down by time period. Hopefully as it was transferred in in 2001 it will be in the pre 2006 pot with 5% protection.
    You can't make that assumption - transfers in can be handled in various ways. You need to check with the administrators.
    I will be asking :smile:

    This is all steering me towards taking the pension early as possible, and front loading it (lump sum and stepped [higher payout before state pension age]).  This is based on the assumption that I can beat inflation (9.7% real returns over 8 years), and the fact that the DB pension can only equal or fail to beat inflation.
    Makes sense if your only concern and objective is to have a chance of beating inflation. Would taking it early have tax consequence if you have other income? Does your 9.8% beat the inflation increase that the DB would get plus the actuarial reduction that is likely to be imposed for taking early?

     



     
  • I've done a bit more research, will describe it here in case other Deferred DB people are interested.

    I've just gone back to some calculations from 3 years ago. And brought in my pension statements and inflation data for 2022,2023,2024.   (Aside: No surprise my inflation predictions were better than the Bank of England).

    And I can now see for myself that the 50% of my pension that was transferred in is being capped at 5% cumulative (phew).  The reason I can see this is because the fortunately small part of my pension that is capped at 2.5% has now lost value relative to the other parts.

    From June 2010 to April 2024 the 5% capped parts have been uplifted 47.2%  whereas the 2.5% capped part has been uplifted 37.8%.

    When I start taking my pension the portion capped at 2.5% rises from 5% of the pension to 20% of the pension. Which is upsetting because the chances are inflation will be above 2.5% in a lot of years in the future (maybe most of them) so my pension is likely to be losing to inflation from year 1 of taking it.

    Actuarial knockdown seems to be pretty fair for me from age 57 next year to 60. So I'm still planning to get as much money 'out' and under my control as soon as possible (stepped pension with limp sum). My health situation also points to front loading the pension payments.  

    I'm regretting being slow at looking at my pension and spotting the generous CETVs. I joined the forum to look into it when I heard about it, but CETVs were already falling, and general advice was that it would probably be hard to accomplish. 

    On the positive side, when I left work in 2010, I wasn't expecting the pension to be worth much by my 2033 NRD.




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