LG DB Pension Annual CPI Uplift

[Dicky99]

At the end of May this year I will be able to start claiming my local gov db pension and so I have obtained the forms to request commencement of payment.

Together with the forms there is a covering letter indicating the annual pension amount and the lump sum payment. Both figures are this (old) financial year's whereas, because my payments commence in the new year, and since they already know the applicable CPI uplift, I was anticipating that I would be quoted new financial year figures. I wasn't concerned about the annual amount as I figured this would be auto uplifted along with everybody elses'.
My concern was receiving last years quoted lump sum which would be £2k less in my pocket than after applying the CPI increase.

When I called to query this the lady I was speaking to stated that I would not receive an uplift on my lump sum despite it being paid in the new financial year but throughout our conversation she seemed worryingly uncertain and lacking any conviction in her responses. When I queried it further she advised me that I might want to seek independent financial advice I explained that this query, which was related to their pension rules, was a matter for them to answer, not a financial adviser and at that point I asked to speak to someone else who could give a clearer idea of what the situation is.

She put me on hold saying that she would speak with someone else before coming back to me and advising that not only would the lump sum not have the CPI % uplift applied, but neither would the annual payment because increases are only applied to members' pensions when they have been claiming for more than 12 months.

This seems illogical to me since if I hold off claiming for a month or two my pension statement will undoubtedly reflect the new uplifted figures as it has in every past year. If I have to I'll do that but I don't think I should have to so does anyone with an LG pension have any knowledge about this?

We ended the conversation with me requesting links to official guidance which confirms this advice that no CPI uplift applies until 12 months after first claiming.

[DrFfybes]

She put me on hold saying that she would speak with someone else before coming back to me and advising that not only would the lump sum not have the CPI % uplift applied, but neither would the annual payment because increases are only applied to members' pensions when they have been claiming for more than 12 months.

This seems illogical to me since if I hold off claiming for a month or two my pension statement will undoubtedly reflect the new uplifted figures as it has in every past year. If I have to I'll do that but I don't think I should have to so does anyone with an LG pension have any knowledge about this?

We ended the conversation with me requesting links to official guidance which confirms this advice that no CPI uplift applies until 12 months after first claiming.

I started my LGPD pension last jan. I got the CPI uplift in April, but obviously not to my Lump Sum, which was pretty minimal as I joined the scheme shortly before they changed it and abolished the TFLS aspect.

I did see something in my booklet about only getting a pro-rata CPU uplift, but I got the whole 10% or so.

Paul

[staffordian]

I retired (early )at the end of June 2011 and when the April 2012 inflation uplift was applied to my LG pension, I only received three quarters of the 5.2% rise.

Had I retired at the end of March as one or two colleagues did, I would have received the full increase. It was something I had no idea about and was not told; I paid for my flexibility in agreeing to stay longer for an easier handover

Querying it elicited the response that the first year's cost of living rise is pro rata based on the number of months the pension has been in payment.

[XFool]

At the end of May this year I will be able to start claiming my local gov db pension and so I have obtained the forms to request commencement of payment.

Together with the forms there is a covering letter indicating the annual pension amount and the lump sum payment. Both figures are this (old) financial year's whereas, because my payments commence in the new year, and since they already know the applicable CPI uplift, I was anticipating that I would be quoted new financial year figures. I wasn't concerned about the annual amount as I figured this would be auto uplifted along with everybody elses'.
My concern was receiving last years quoted lump sum which would be £2k less in my pocket than after applying the CPI increase.

When I called to query this the lady I was speaking to stated that I would not receive an uplift on my lump sum despite it being paid in the new financial year but throughout our conversation she seemed worryingly uncertain and lacking any conviction in her responses. When I queried it further she advised me that I might want to seek independent financial advice I explained that this query, which was related to their pension rules, was a matter for them to answer, not a financial adviser and at that point I asked to speak to someone else who could give a clearer idea of what the situation is.

She put me on hold saying that she would speak with someone else before coming back to me and advising that not only would the lump sum not have the CPI % uplift applied, but neither would the annual payment because increases are only applied to members' pensions when they have been claiming for more than 12 months.

This seems illogical to me since if I hold off claiming for a month or two my pension statement will undoubtedly reflect the new uplifted figures as it has in every past year. If I have to I'll do that but I don't think I should have to so does anyone with an LG pension have any knowledge about this?

Just an opinion, no expert on this, but I have to say - however you feel about it - it does sound pretty logical to me. The CPI increase to your pension is just that: a retrospective increase to your pension in payment (usually based on government figures from September previous year).

But you say your pension is not yet in payment, so hardly in payment last year. As for the lump sum, with a DB pension that is typically a multiple of the annual pension amount (3x ?), which you have yet to receive. So they are tied together. As for the actual pension amount you will be entitled to, with a DB pension this will be related to your years in pensionable service, the scheme accumulation rate and your pensionable salary at retirement, all as defined in the pension scheme terms, at the date you retire; no CPI involved.

The only way I can see CPI being of any relevance is if your DB pension is based directly on your final year's salary and this was increased by CPI before you retired.

[staffordian]

At the end of May this year I will be able to start claiming my local gov db pension and so I have obtained the forms to request commencement of payment.

Together with the forms there is a covering letter indicating the annual pension amount and the lump sum payment. Both figures are this (old) financial year's whereas, because my payments commence in the new year, and since they already know the applicable CPI uplift, I was anticipating that I would be quoted new financial year figures. I wasn't concerned about the annual amount as I figured this would be auto uplifted along with everybody elses'.
My concern was receiving last years quoted lump sum which would be £2k less in my pocket than after applying the CPI increase.

When I called to query this the lady I was speaking to stated that I would not receive an uplift on my lump sum despite it being paid in the new financial year but throughout our conversation she seemed worryingly uncertain and lacking any conviction in her responses. When I queried it further she advised me that I might want to seek independent financial advice I explained that this query, which was related to their pension rules, was a matter for them to answer, not a financial adviser and at that point I asked to speak to someone else who could give a clearer idea of what the situation is.

She put me on hold saying that she would speak with someone else before coming back to me and advising that not only would the lump sum not have the CPI % uplift applied, but neither would the annual payment because increases are only applied to members' pensions when they have been claiming for more than 12 months.

This seems illogical to me since if I hold off claiming for a month or two my pension statement will undoubtedly reflect the new uplifted figures as it has in every past year. If I have to I'll do that but I don't think I should have to so does anyone with an LG pension have any knowledge about this?

Just an opinion, no expert on this, but I have to say - however you feel about it - it does sound pretty logical to me. The CPI increase to your pension is just that: a retrospective increase to your pension in payment (usually based on government figures from September previous year).

But you say your pension is not yet in payment, so hardly in payment last year. As for the lump sum, with a DB pension that is typically a multiple of the annual pension amount (3x ?), which you have yet to receive. So they are tied together. As for the actual pension amount you will be entitled to, with a DB pension this will be related to your years in pensionable service, the scheme accumulation rate and your pensionable salary at retirement, all as defined in the pension scheme terms, at the date you retire; no CPI involved.

The scheme changed in 2014 to a career average and used different accrual rates. Pre 2014, 1/80 of final salary per year worked and lump sum 3x annual pension, details here, to take my pension paying authority as an example...

https://www.derbyshirepensionfund.org.u ... d-out.aspx

[DrFfybes]

I retired (early )at the end of June 2011 and when the April 2012 inflation uplift was applied to my LG pension, I only received three quarters of the 5.2% rise.

Had I retired at the end of March as one or two colleagues did, I would have received the full increase. It was something I had no idea about and was not told; I paid for my flexibility in agreeing to stay longer for an easier handover

Querying it elicited the response that the first year's cost of living rise is pro rata based on the number of months the pension has been in payment.

Aha - that is what I expected from https://www.lgpsmember.org/faqs/how-are ... alculated/

However it definitely wasn't the same in my case, gettingthe full 10.1% on my 4th payment. The only thing I could think of is that I was a deferred member rather than recent employee. It would have been galling had it been pro-rata'd, the extra reduction for taking it the previous March would have been dwarfed by the extra CPI increase if that was the case.

I also think the annual reductions for taking it early have changed again, they were circa 3.5% per early year, went up to nearly 5 when I took mine, then apparently dropped again?

Paul

[Dicky99]

Just an opinion, no expert on this, but I have to say - however you feel about it - it does sound pretty logical to me. The CPI increase to your pension is just that: a retrospective increase to your pension in payment (usually based on government figures from September previous year).

But you say your pension is not yet in payment, so hardly in payment last year. As for the lump sum, with a DB pension that is typically a multiple of the annual pension amount (3x ?), which you have yet to receive. So they are tied together. As for the actual pension amount you will be entitled to, with a DB pension this will be related to your years in pensionable service, the scheme accumulation rate and your pensionable salary at retirement, all as defined in the pension scheme terms, at the date you retire; no CPI involved.

The scheme changed in 2014 to a career average and used different accrual rates. Pre 2014, 1/80 of final salary per year worked and lump sum 3x annual pension, details here, to take my pension paying authority as an example...

https://www.derbyshirepensionfund.org.u ... d-out.aspx

Because I left the scheme in 2005 mine is based on final salary.

The bit I can't get my head around is that every year up till now I have received a statement, early in the new financial year, showing my CPI adjusted pension entitlement, but from the way it was explained, in this year the inflation adjustment won't be applied. But indexation would resume after I'd been drawing my pension for 12 months.

[SebsCat]

It is standard for deferred pensions to be increased on a set date (say April 1st). But that doesn't mean that the actual quote you are given doesn't take into account the time factor. That's obviously going to include expected life span but it likely also includes an inflation element. So the quote you are given in March will be higher than one you got the previous April. But it doesn't necessarily mean that a quote for April 1st would be noticeably higher than one for March 31st (ie you shouldn't expect it to suddenly jump when it shifts to the new year).

One obvious solution if you are worried that you might be missing out is to wait until immediately after the scheme's end of year and then ask for a new quote.

[Dicky99]

One obvious solution if you are worried that you might be missing out is to wait until immediately after the scheme's end of year and then ask for a new quote.

That's along the lines that I'd decided on however an update is that I've just logged on to the pension portal and my benefits figures have now been increased to the amounts that I'd anticipated them to be, based on applying last September's CPI number. So this update must have been applied in the last few days. Just to be certain though I've pinged off a query, in light of the unsatisfactory telephone discussion today, asking them to confirm that it is the amounts showing on my pension dashboard which will be paid and not the ones in my letter.

[XFool]

At the end of May this year I will be able to start claiming my local gov db pension and so I have obtained the forms to request commencement of payment.

Was this a deferred DB pension? Or an in employment pension? i.e. You are about to reach the age of retirement from your current job?

[stevem01]

Because I left the scheme in 2005 mine is based on final salary.

The bit I can't get my head around is that every year up till now I have received a statement, early in the new financial year, showing my CPI adjusted pension entitlement, but from the way it was explained, in this year the inflation adjustment won't be applied. But indexation would resume after I'd been drawing my pension for 12 months.

For many DB pension schemes, certainly for many private sector DB pension schemes, they are revalued for each FULL YEAR that they are deferred and the revaluation is applied ON EACH ANNIVERSAY of the deferral date, not 01 January of each year.

If you look at the latest issue of "The Occupational Pensions (Revaluation) Order" issued on November 2023, which applies from 01 January 2024 (https://www.legislation.gov.uk/uksi/2023/1265/made) you will see that the revaluation is listed for periods starting from 1st January 1986 - 31st December 2023, which is for 38 complete calendar years, then 1st January 1987 - 31st December 2023, which is for 37 complete calendar years and so on until 1st January 2023 - 31st December 2023, which is for 1 complete calendar year. The revaluation factor that is applied to a deferred pension that is subject to revaluation according to these orders, is based on the number of FULL YEARS that the pension was deferred for.

In my own case, I ended up delaying commencement of my DB pension by a couple of months so as to ensure that another FULL YEAR of revaluation was applied. I had deferred my DB pension a couple of months AFTER my birthday in the year I deferred it and I could initiate payment of the DB pension without the application of any early retirement abatement factor from my 60th birthday. My birthday is in July, however, by delaying payment by 2 months I received another FULL YEAR of deferred revaluation in the initial pension that was paid to me.

I would hazard a guess that this is the reason why it is being explained that this year’s inflation adjustment won't be applied to your DB pension. Simply because you have not yet reached the anniversary of the date that you deferred the DB pension.

[XFool]

Because I left the scheme in 2005 mine is based on final salary.

Ah. Just read the above. Changes things!

[Dicky99]

At the end of May this year I will be able to start claiming my local gov db pension and so I have obtained the forms to request commencement of payment.

Was this a deferred DB pension? Or an in employment pension? i.e. You are about to reach the age of retirement from your current job?

It's a deferred pension. I left the scheme in 2005 to work freelance then packed up working in 2021. 60th birthday in May mark's the start of the pension payout.

[Dicky99]

Because I left the scheme in 2005 mine is based on final salary.

The bit I can't get my head around is that every year up till now I have received a statement, early in the new financial year, showing my CPI adjusted pension entitlement, but from the way it was explained, in this year the inflation adjustment won't be applied. But indexation would resume after I'd been drawing my pension for 12 months.

For many DB pension schemes, certainly for many private sector DB pension schemes, they are revalued for each FULL YEAR that they are deferred and the revaluation is applied ON EACH ANNIVERSAY of the deferral date, not 01 January of each year.

If you look at the latest issue of "The Occupational Pensions (Revaluation) Order" issued on November 2023, which applies from 01 January 2024 (https://www.legislation.gov.uk/uksi/2023/1265/made) you will see that the revaluation is listed for periods starting from 1st January 1986 - 31st December 2023, which is for 38 complete calendar years, then 1st January 1987 - 31st December 2023, which is for 37 complete calendar years and so on until 1st January 2023 - 31st December 2023, which is for 1 complete calendar year. The revaluation factor that is applied to a deferred pension that is subject to revaluation according to these orders, is based on the number of FULL YEARS that the pension was deferred for.

In my own case, I ended up delaying commencement of my DB pension by a couple of months so as to ensure that another FULL YEAR of revaluation was applied. I had deferred my DB pension a couple of months AFTER my birthday in the year I deferred it and I could initiate payment of the DB pension without the application of any early retirement abatement factor from my 60th birthday. My birthday is in July, however, by delaying payment by 2 months I received another FULL YEAR of deferred revaluation in the initial pension that was paid to me.

I would hazard a guess that this is the reason why it is being explained that this year’s inflation adjustment won't be applied to your DB pension. Simply because you have not yet reached the anniversary of the date that you deferred the DB pension.

Thanks for this explanation. Perhaps it is the same for public sector pensions as well and the lady I spoke to didn't have sufficient understanding herself to explain that. That said I just checked and my deferred date was first week in January 2006 so another anniversary has passed, which post dates the figures I was quoted in my letter.

Given that my online dashboard is now showing inflated figures, I'm hoping that it was just down to really unfortunate timing that I requested my pension only a few days before the inflation uplifts were applied.

[XFool]

Thanks for this explanation. Perhaps it is the same for public sector pensions as well and the lady I spoke to didn't have sufficient understanding herself to explain that.

Or possibly she too didn't know it was a deferred pension, rather than one for an employee approaching retirement age?