Company Pension - No discretionary increase

Troytempest

I have a private company pension which is split into 3 components..

GMP prior to 6 April 1988 - Not increased by the plan
GMP after 6 April 1988 - 1.7% increase
Pension in excess of GMP accrued prior to 5 April 1997 - Discretionary increases only, no increase

The bulk of it is in the 3rd category.  Can I assume that as it is discretionary that it will never be increased...

Thank you

Notepad_Phil

Troytempest said:

I have a private company pension which is split into 3 components..

GMP prior to 6 April 1988 - Not increased by the plan
GMP after 6 April 1988 - 1.7% increase
Pension in excess of GMP accrued prior to 5 April 1997 - Discretionary increases only, no increase

The bulk of it is in the 3rd category.  Can I assume that as it is discretionary that it will never be increased...

Thank you

You might be lucky and your company will increase them on a regular basis, but I would think that with most companies any discretionary increases will be on a very irregular basis. My company has made a discretionary increase twice over the last 20 years, each time of a couple of percent or so, so in my retirement plans I've discounted any such increases.

But it will depend on who your company is, maybe if it still has a highly unionised group of employees then there may be more pressure on the company to pay discretionary increases, but I fear with the money pressures that most companies operate under then they will only pay what they contractually have to with the occasional extra.

xylophone

I have a private company pension which is split into 3 components..
GMP prior to 6 April 1988 - Not increased by the plan
GMP after 6 April 1988 - 1.7% increase
Pension in excess of GMP accrued prior to 5 April 1997 - Discretionary increases only, no increase

You mean that the post 88 GMP will be increased by 1.7% (ie CPI) September 24) in 25/26?

The GMP increases are standard - see https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

Increases provided by the scheme
The level of increase that the pension scheme itself is responsible for providing depends on when the GMP was built up:

• GMP built up between 6 April 1988 and 5 April 1997 must increase in line with prices, capped at 3%
• GMP built up before 6 April 1988 does not have to be increased

 

With regard to the  increase on pre 97 excess, see

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

https://www.thebaron.info/news/article/2024/02/27/government-rejects-plea-for-pre-1997-pensions-indexation

The 1995 Pensions Act only made limited indexation obligatory for DB schemes after April 1997.

Marcon

Troytempest said:

I have a private company pension which is split into 3 components..

GMP prior to 6 April 1988 - Not increased by the plan
GMP after 6 April 1988 - 1.7% increase
Pension in excess of GMP accrued prior to 5 April 1997 - Discretionary increases only, no increase

The bulk of it is in the 3rd category.  Can I assume that as it is discretionary that it will never be increased...

Thank you

You can assume anything, but it would be more productive to look at the history of discretionary increases - have there been any and if so when/under what conditions?

DRS1

Work on the basis that it will never be increased.  Then if it is it is a nice bonus.

Any increase will largely depend on whether there is a surplus in the pension scheme.

DullGreyGuy

Troytempest said:

I have a private company pension which is split into 3 components..

GMP prior to 6 April 1988 - Not increased by the plan
GMP after 6 April 1988 - 1.7% increase
Pension in excess of GMP accrued prior to 5 April 1997 - Discretionary increases only, no increase

The bulk of it is in the 3rd category.  Can I assume that as it is discretionary that it will never be increased...

What historical ones have their been?

What is the state of the fund?

Marcon

DRS1 said:

Work on the basis that it will never be increased.  Then if it is it is a nice bonus.

Any increase will largely depend on whether there is a surplus in the pension scheme.

There's usually a lot more to it than that - especially the impact any discretionary increase has on the sponsoring employer's financial statements. 

Troytempest

I can only go back 5 years but no discretionary increases have been paid.

The plan seems to be about 98% funded so a small shortfall.

DRS1

Marcon said:

DRS1 said:

Work on the basis that it will never be increased.  Then if it is it is a nice bonus.

Any increase will largely depend on whether there is a surplus in the pension scheme.

There's usually a lot more to it than that - especially the impact any discretionary increase has on the sponsoring employer's financial statements. 

As you know simply having a defined benefit pension scheme has an impact on a company's financial statements.  Plenty of factors affect those sums not just pension increases.

The point I was making was not to expect a company to make a contribution to the scheme to fund discretionary pension increases.  If as here there is a deficit then the contributions will be to cover benefit accrual and make a dent in the deficit.  However if things turn around and there is a surplus then who knows there may be circumstances where the company and the trustees negotiate some pension increases.  But a safe rule of thumb would be "no surplus no increases".  Sadly of course the opposite does not hold: a surplus does not mean there will be discretionary pension increases.

Marcon

Troytempest said:

I can only go back 5 years but no discretionary increases have been paid.

The plan seems to be about 98% funded so a small shortfall.

There are various bases on which funding is assessed. On what basis is the scheme 98% funded? Your latest Summary Funding Statement should give you help answering what appears to be a mystical question!

bjorn_toby_wilde

DRS1 said:

Marcon said:

DRS1 said:

Work on the basis that it will never be increased.  Then if it is it is a nice bonus.

Any increase will largely depend on whether there is a surplus in the pension scheme.

There's usually a lot more to it than that - especially the impact any discretionary increase has on the sponsoring employer's financial statements. 

As you know simply having a defined benefit pension scheme has an impact on a company's financial statements.  Plenty of factors affect those sums not just pension increases.

The point I was making was not to expect a company to make a contribution to the scheme to fund discretionary pension increases.  If as here there is a deficit then the contributions will be to cover benefit accrual and make a dent in the deficit.  However if things turn around and there is a surplus then who knows there may be circumstances where the company and the trustees negotiate some pension increases.  But a safe rule of thumb would be "no surplus no increases".  Sadly of course the opposite does not hold: a surplus does not mean there will be discretionary pension increases.

The rule of thumb for one of my DB pensions is “no statutory requirement to increase, no increase”. The annual summary always has a sentence in it something along the lines of “the Trustees requested a discretionary increase but the company declined”.

Thankfully I’m not reliant on those increases but I feel for some of my old colleagues who are.