CPI RPI and the Pension

[reds & greens]

Esteemed members
I left the Service this year and the pension is being paid at the correct rate at the right time. I am conscious of the pension being index linked, but what is the mechanism for this?
Is there a certain value (I seem to recall a change from RPI to CPI some time ago)?
Is the % value taken over a set time and does it come into effect at that time?
Grateful for your answers, it's just I'd like to know what is happening for my first year.

[TomJoad]

You are correct, the pension is no longer linked to RPI but rather CPI. The % is taken from each past year in which the pension has been paid. You get the benefit of the rolled up effect together with whatever commutation ammount you took when you are age 55. Until then you will continue to receive your pension at its current value. Hope that helps.

[Al R]

Technically speaking, ONS no longer applies RPI to anything anyway, but stand by for CPIH.

From March of this year.

Two new inflation measures ? will either be used for pensions? | Towers Watson - Towers Watson

The Government has previously said that it would consider whether to base some pension increases on CPIH inflation rather than on CPI inflation once CPIH became available. Last week, the ONS said that throughout the seven years to 2012 CPIH inflation was always lower than or the same as CPI inflation. It was on average been 0.2 per cent lower and this was also the gap at the end of 2012.

[viz]

Al, can you tell me whether the CPI figure used for pension increases is the annual figure or one particular month? (October's figure rings a bell).

If it is one month, is there an online list containing the figures? I can find the historical annual RPI/CPI inflation but am looking for the one actually used - it would be good to have an idea of how much, or little my immediate pension will be worth at 55

[TomJoad]

Originally Posted by viz

Al, can you tell me whether the CPI figure used for pension increases is the annual figure or one particular month? (October's figure rings a bell).

If it is one month, is there an online list containing the figures? I can find the historical annual RPI/CPI inflation but am looking for the one actually used - it would be good to have an idea of how much, or little my immediate pension will be worth at 55

September CPI is used to index the pension.

BBC News - UK CPI inflation rate rises to 5.2% in September

Historical rates from 2003 to date are here

UK Historical Consumer Price Index (CPI) - 2003 to 2013

[viz]

Thanks Tom, one further question... if we were to see a negative inflation rate again would our pensions take the hit and reduce, or just mark time as if it's a 0% increase that year? Ta

[TomJoad]

I'm not 100% sure viz but something in the back of my mind says we are not affected by - % CPI so it just treads water. You may want to check out the forces pension site to be safe.

[Al R]

If it is zero or below in the September, then any pension payment linked to CPI remains the same in April of the next year, for the next 12 months. Bear in mind that other arrangements could be linked to the so called Triple Lock arrangement which limits growth anyway.

[Al R]

Viz,

Para 2.2 refers. It refers to locking in the rise of the state pension, to ensure some growth at least. It is probably a dead duck mind, even though the idea is only a couple of years old.

http://www.parliament.uk/Templates/B...?bp-id=SN05649

[Al R]

Al R said:

Technically speaking, ONS no longer applies RPI to anything anyway, but stand by for CPIH.

It took three years, but it's finally here.

CPIH does not include property prices, whereas the current CPI does include cost of living in your house. CPIH or CPI of course, determines your annual pension increase. It's impossible to predict the future, but CPIH won't capture increases in house prices. That aside, and taking into account the post Brexit dip, in September, CPI was running at 1%, CPIH at 1.2%. Ordinarily, we should assume CPI would be higher.

Who will be affected? Anybody with wage bargaining involving a measure of inflation, pensioners with a pension which depends on inflation (us), investors in UK index-linked Gilt (me, I quite like them!), and savers with National Savings and other index-linked bonds.

Edit repaired link:

UK to adopt CPIH as preferred inflation measure in March 2017 | Reuters

[Background Noise]

Originally Posted by TomJoad

You get the benefit of the rolled up effect together with whatever commutation ammount you took when you are age 55. Until then you will continue to receive your pension at its current value.

Not sure you can be that specific without knowing his age at retirement and his pension scheme?

[Voxpop]

Only AFPS 75 offers the sort of commutation that TomJoad is referring to.

AFPS 05 allows you to give up some or all of your tax free lump sum to improve your taxable pension.

AFPS 15 allows you to give up all of your tax free EDP lump sum to improve your taxable pension. AFPS 15 does not give an automatic pension lump sum but it allows members to surrender some of their pension to generate one.

[Background Noise]

Thanks Vox, I'm not sure the original question was about commutation However, TomJ appears to have made an assumption that the OP has retired under 55, on AFPS75 - which may not apply, specially if R&G thinks he is on an index linked pension.

[Whenurhappy]

On a related issue I recently received my BIS from the Veterans' Agency,outlining my pension benefits. I’m stillserving (just) and notice that there were several errors in the document, such as commencement of service etc. I wrote back to them and they then issued anamended pensions forecast, but included a curious letter stating that theywould continue to issue the Benefits Statement, with its known errors. The logic for this is that the BIS iscalculated from JPA, whereas the actual pension is calculated from all theinformation held by the SPVA.

Surely that’s a potentially fraudulent act to knowingly issue a financialdocument which they know to be false? Ifind this attitude absolutely cavalier. If this was my bank doing it, I’d be straight to the Regulator aboutit.

When I get around to it, I will draw it to the Pensions Society’s attentionand see what they say. What do PPruners think>

[gzornenplatz]

CPI increase in pensions

I received notice that the September 2015 CPI was 0% so my RAF and Civil Service pensions would be frozen for 2016. One can only hope for an improvement next year.

[Willard Whyte]

CPI was 1% September '16.

Whenurhappy, after being given notice of redundancy I received a pensions forecast which was in error (~£15K lump sum/£3K p/a pension). I contacted them and was told "not to worry, it's just a forecast based on the date of issue." (I achieved 5 yrs as PA just after the forecast was issued). After Sep '12 I received my lump sum and pension. They were ~£15K and £3K out respectively.

A strongly worded letter of complaint, including supporting evidence printed out from my JPA pages as to my >5yr status as PA, resulted in a cheque being issued and an increase in my pension. So, keep a VERY close eye on things and have the evidence to hand - it will be difficult to gather evidence once you have left, to say the least.

[Whenurhappy]

I have previous pensionable service, so I accept that my case requires a bit of work - but that's their job! I shouldn't have to tell them where to look for the information and then how it should be applied,but I just find it astounding that, when the VA acknowledge there's an error, they continue to knowlingly publish incorrect information.

But I agree. Keep copies of everything.

[Voxpop]

Whenurhappy, this link takes you to an article we wrote on the BIS, explaining its limitations. Pages 10-11 refer:

https://cloud.3dissue.com/6374/7271/...C15/index.html

[ShortFatOne]

AFPS calculator error

On a slightly different but related topic, I am disappointed to see that the calculator is still in error for certain groups despite having written to point out said error. The error appears to be in the application of the max level to which PA Flt Lt pilots can go and the subsequent forecast. As one who moved onto the PA scheme in 2005 we were not limited to lvl 30? (that only applied to Flt Lt pilots moving onto PAS after 2010). When inputting the data for a forecast it asks what lvl I was on 1st April 15 and then again on 1st Apr 16. I cannot select the lvl I was on as it will not offer me the option of anything higher than lvl 30. I know this probably means my forecast is a little shy of the actual amount I'm likely to receive but the fact remains the calculator is wrong (it would be fairly easy fix as it knows when you moved onto PAS - it's one of the first things it asks you!) and it does not fill me with confidence if the 'system' can't get sometjing as straightforward as MS Access look-up table correct :-(