Additional inflation Adjustment, what are my chances?

Currently my DB pension increases by RPI/CPI by a maximum of 2.5% or 5% depending on when the benefit accrued of course this has meant a drop in value in real terms during the recent 10%ish inflation years.
The scheme booklet says that the company and trustee may consider higher increases if the scheme is adequately funded.

The scheme is closed and consists of a mix of 50% deferred member and 50% pensioners, of course the deferred pensioners were somewhat protected from the excess inflation but the active pensioners have had to absorb the effect of excess inflation.

The most recent funding figures are as follows:

"The last actuarial valuation was undertaken on
31 December 2020
An actuarial valuation is an exercise to compare how
much money the Plan has (its ‘assets’) with how much it
needs to be able to pay everyone the benefits they are
entitled to (its ‘liabilities’). If the Plan’s assets are more
than its liabilities, there is a ‘surplus’; if they are less,
there is a ‘shortfall’ or ‘deficit’.
Full valuations usually take place every three years and
the last one was on 31 December 2020, with a yearly
update on 31 December 2021 and 31 December 2022.
The results of the latest valuation and funding updates
are shown on the right.
20202021
+£666m Surplus
(116% funded)
Page 1 (of 2)
£4,864m Assets
£4,198m Liabilities
+£395m Surplus
(109% funded)£4.711m Assets
£4,316m Liabilities
Winding-up
As part of the Summary Funding Statement, all
schemes need to tell members what the funding level
would be if the Employer circumstances were to
change and a scheme to be wound up.
We are required to provide members with this
information by law and it does not imply that the
Trustee or the Employer is considering winding up the
Scheme.
If the Plan winds up, the duty to pay all members’
benefits may be transferred to an insurance company.
In the 2020 valuation it was estimated that the
amount needed to secure all the Plan’s benefits was
£5,603m, which was £892m more than the Plan’s
assets.
Similar to above, we expect the amount needed to
secure all the Plan’s benefits with an insurance
company will have fallen significantly since the 2020
valuation as a result of the rising gilt yields, although it
is estimated that the amount required is still
marginally more than the current value of the Plan’s
assets.
2022
£2,761m Assets
£2,624m Liabilities
+£137m Surplus
(105% funded) "

My question is would I be wasting my time writing to the Trustee organisation  requesting that they consider a one off increase for pensioners given there is just a 5% surplus?

Does anyone know at what sort of level of surplus Trustees feel sufficiently flush to  approve an ad-hoc increase?

Many thanks for your thoughts

«13

Comments

  • leosayer
    leosayer Posts: 559 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    Is your pension in payment or deferred? 

    There's no harm in writing but it will have more strength in numbers coupled with coherent arguments about the impact the caps have on pensioners.

    This happened (unsuccessfully) with BP recently - it was covered in the press.
  • CTFC
    CTFC Posts: 37 Forumite
    Part of the Furniture 10 Posts Name Dropper
    Hi, its currently in payment. I will take a look at the BP campaign.

    Many Thanks
  • Tommyjw
    Tommyjw Posts: 237 Forumite
    Eighth Anniversary 100 Posts Name Dropper Combo Breaker
    Every scheme and Trustee will be different, but it must be remembered a Scheme in surplus will want to stay there and remain there at absolute any cost given the many issues faces over recent years in the world and the impact in scheme funding , so they want to have as much room as possible.

    But seperate to "facing" the Trustee about it, the majority of discretionary increase rules I've seen say the company also need to approve it - the company will ultimately fit the bill if the Schemes funding is messed up, so they themselves will also want to say no wherever possible.

    As BT showed, they are never required to do it no matter the funding level, not to be dismissive but I also would never see how groups of members asking for it would change anything.

  • DRS1
    DRS1 Posts: 936 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    Ask. What's the worst that can happen?

    The suggestion is that the scheme is underfunded on a wind up basis in 2022 and that would make me say NO if I was a trustee or the employer.  But who knows if the situation has improved in 2023 and 2024.  Might the employer want to wind up the scheme and be prepared to let the trustees use up any surplus on the winding up for the benefit of pensioners and deferred pensioners as the price of getting this massive burden off their books.
  • pterri
    pterri Posts: 347 Forumite
    100 Posts Second Anniversary Name Dropper
    I’ve often wondered this for my DB, I read something in the FT that some sponsoring companies are also asking for some money back or a decrease in their contribution as a result of any ‘surplus’. Much as it pains me to admit, the sponsoring companies do have a point in wanting to share any over funding. Having said that for me security is so important. I want as close to 100% as possible that the pension will continue to pay out until I’m in a box which could be 40yrs. Have any DB schemes awarded a discretionary increase over their normal obligation? 
  • pterri said:
    Interesting article.
    I know a couple of our Trustees well. Our scheme is 105% funded and it would be a waste of a question. We insured against a chunk of it last year with a buy-in. 
  • The trustees of one of my old company pension schemes request rises in most years. The company has always declined.

    Interesting to see the articles about other schemes where companies have been more responsive.
  • Marcon
    Marcon Posts: 13,746 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper Combo Breaker
    edited 11 December 2024 at 12:42AM
    CTFC said:
    Currently my DB pension increases by RPI/CPI by a maximum of 2.5% or 5% depending on when the benefit accrued of course this has meant a drop in value in real terms during the recent 10%ish inflation years.
    The scheme booklet says that the company and trustee may consider higher increases if the scheme is adequately funded.

    The scheme is closed and consists of a mix of 50% deferred member and 50% pensioners, of course the deferred pensioners were somewhat protected from the excess inflation but the active pensioners have had to absorb the effect of excess inflation.

    The most recent funding figures are as follows:

    "The last actuarial valuation was undertaken on
    31 December 2020
    An actuarial valuation is an exercise to compare how
    much money the Plan has (its ‘assets’) with how much it
    needs to be able to pay everyone the benefits they are
    entitled to (its ‘liabilities’). If the Plan’s assets are more
    than its liabilities, there is a ‘surplus’; if they are less,
    there is a ‘shortfall’ or ‘deficit’.
    Full valuations usually take place every three years and
    the last one was on 31 December 2020, with a yearly
    update on 31 December 2021 and 31 December 2022.
    The results of the latest valuation and funding updates
    are shown on the right.
    20202021
    +£666m Surplus
    (116% funded)
    Page 1 (of 2)
    £4,864m Assets
    £4,198m Liabilities
    +£395m Surplus
    (109% funded)£4.711m Assets
    £4,316m Liabilities
    Winding-up
    As part of the Summary Funding Statement, all
    schemes need to tell members what the funding level
    would be if the Employer circumstances were to
    change and a scheme to be wound up.
    We are required to provide members with this
    information by law and it does not imply that the
    Trustee or the Employer is considering winding up the
    Scheme.
    If the Plan winds up, the duty to pay all members’
    benefits may be transferred to an insurance company.
    In the 2020 valuation it was estimated that the
    amount needed to secure all the Plan’s benefits was
    £5,603m, which was £892m more than the Plan’s
    assets.
    Similar to above, we expect the amount needed to
    secure all the Plan’s benefits with an insurance
    company will have fallen significantly since the 2020
    valuation as a result of the rising gilt yields, although it
    is estimated that the amount required is still
    marginally more than the current value of the Plan’s
    assets.
    2022
    £2,761m Assets
    £2,624m Liabilities
    +£137m Surplus
    (105% funded) "

    My question is would I be wasting my time writing to the Trustee organisation  requesting that they consider a one off increase for pensioners given there is just a 5% surplus?

    Does anyone know at what sort of level of surplus Trustees feel sufficiently flush to  approve an ad-hoc increase?

    Many thanks for your thoughts

    Complete waste of time for various reasons, including:

    • there is currently a triennial valuation in progress (as at 31 December 2023), so nobody is going to be rushing do to anything
    • highly unlikely the trustee has a unilateral power to award discretionary increases
    • inflation has dropped considerably in the last couple of years, so if the employer didn't want to fork out for a discretionary increase then, it's highly unlikely to do so now. For many schemes, this is a historic provision in the rules of the scheme and was only ever likely to be implemented if the scheme was in surplus on the (now abolished) 'statutory surplus' test - in which case it would be subject to a punitive tax charge unless it 'spent' some of the surplus. Typical ways to do this were either taking a 'contribution holiday' or improving benefits for members.
    The funding level of a scheme fluctuates the whole time - it's not that long ago the media were babbling on about DB schemes and their massive deficits. Remember that once an increase has been given, it is 'baked in' and all future costs relating to this rise proportionately. What looks enticing in the immediate term (ie a discretionary increase of top of what is promised under the scheme's rules) starts to look rather less attractive if the scheme's funding position deteriorates, and the employer's trading position isn't too hot... 

    Peace of mind (that the scheme is and will remain sufficiently well funded to provide the promised benefits) comes at a price.

    Remember too that any discretionary increase to pensions will hit the employer's P&L account, which in turn could impact on any bonus schemes available to current employees, who will be in a much less favourable DC pension arrangement. Bit tricky to explain that one to employees, particularly those who may not be thrilled with recent modest wage increases.


    Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!  
  • hyubh
    hyubh Posts: 3,709 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Marcon said:
    Complete waste of time for various reasons

    [snip]

    Remember too that any discretionary increase to pensions will hit the employer's P&L account, which in turn could impact on any bonus schemes available to current employees, who will be in a much less favourable DC pension arrangement. Bit tricky to explain that one to employees, particularly those who may not be thrilled with recent modest wage increases.
    While I would agree that the OP challenging a lack of discretionary increases would likely get nowhere, it's unclear why the overall remuneration package for current employees is something that the OP should be concerned with...?
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