1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.
  2. Hi Guest, welcome to the TES Community!

    Connect with like-minded education professionals and have your say on the issues that matter to you.

    Don't forget to look at the how to guide.

    Dismiss Notice

Negative inflation. Effect on index linking of pension.

Discussion in 'Retirement' started by mustntgrumble, Oct 18, 2020.

  1. mustntgrumble

    mustntgrumble New commenter

    In other words deflation.

    I can't find it anywhere but what if, just if, the RPI goes negative. Do our pensions drop or is there a zero limit???
     
  2. diddydave

    diddydave Lead commenter

    old_dobbin, djhappy and border_walker like this.
  3. OwerAuld

    OwerAuld Occasional commenter

    Anyone know if the zero lower limit also applies to the revaluation factors applied to your best 3 in 10 when it comes to calculating pensions not yet in payment?
     
  4. diddydave

    diddydave Lead commenter

    Yes. They use the same factors for the pensions increase...so no negative inflation.
    https://www.gov.uk/government/publications/public-service-pensions-increase-2020

    From the regulations, the salary is revalued in the same way as the pensions:
    https://www.legislation.gov.uk/uksi/2010/990/made/data.pdf
    37
    "(9) P’s increased relevant salary during any period is P’s relevant salary during that period calculated as if P’s relevant salary during any relevant salary period were increased by the amount (if any) by which, immediately before the end of P’s average salary service, it would have been increased if it had been an official pension within the meaning ofsection 5(1) of PIA 1971 beginning, and first qualifying for increases under that Act, on the same day as the relevant salary period ended."
     
    OwerAuld likes this.
  5. diddydave

    diddydave Lead commenter

    One aspect of this that is coming into play right now is that salaries are only increased from the day they change...so if you were one of those whose pay was frozen from 2010 to 2013 those 4 years will be increased by the inflation figure from 2013 only.

    E.g. Take a salary of £45,000 paid from Sep 2010 to Aug 2013.

    The inflation increase to April 2020 from August 2013 is 1.1137 so those 4 years are treated as being £50,116.
    2010 £50,116
    2011 £50,116
    2012 £50,116
    2013 £50,116
    Average for 3 years: £50,116

    Compare that to what would happen if they'd been treated as separate years:
    2010 = £45,000 x 1.2325 = £55,462
    2011 = £45,000 x 1.1856 = £53,353
    2012 = £45,000 x 1.1404 = £51,318
    2013 = £45,000 x 1.1137 = £50,116
    Average for 3 years: £53,377

    The pay freeze has cost the pension around 6.5% of the value just by not adding inflation to the 2010-2012 salaries.
     
    Dorsetdreams, Prim and OwerAuld like this.
  6. OwerAuld

    OwerAuld Occasional commenter

    A good point and while technically within the rules of the scheme definitely not fair play. I suppose the lesson for the future is that if our wages are effectively frozen again (not that I am advocating this for one second) we do as a minimum insist on a token increase to avoid this happening to pensions. Even a £1 increase for each of these years would have stopped this unfairness.
     
    Prim and diddydave like this.
  7. heldon

    heldon Occasional commenter

    bit confused by this

    I am 58 and 5 months am not teaching anymore as I stopped in summer 2018

    I was given a valuation of my pension in autumn 2018 and then again in 2019

    they would not give me one this year as they used the "covid" excuse

    last ten years were 2008 to 2018

    are the valuations I was given likely to change, I presumed cpi would be added each year until I draw the pension at 60?
     
  8. Morninglover

    Morninglover Star commenter


    I can't do the Maths (someone else here perhaps can?), but I'd be tempted to get my pension ASAP esp. the lump sum in case the Government suddenly change the rules to cut pensions citing the 'national Covid costs'.

    Anyway that's what I'd do...
     
  9. diddydave

    diddydave Lead commenter

    That is certainly something I've been pushing whenever I see pay-freezes...at the moment I've only seen them in the private sector.

    Indeed, offering to take a £1 pay cut after a year would have the same effect!
     
  10. diddydave

    diddydave Lead commenter

    Yes, you will get the CPI increase...it will be roughly 1.5% higher than your last statement.

    They publish the April figures here: https://www.gov.uk/government/publications/public-service-pensions-increase-2020

    You should be fully in the final salary scheme so there will be no bonus increase as that applies only to the career average scheme benefits.
     
  11. heldon

    heldon Occasional commenter

    thanks diddydave

    my question was really the valuation of my pension I was given in 2018

    that won't change will it, except the cpi increases?

    it's this bit below which is confusing me somewhat, is it some sort of new rule??

    E.g. Take a salary of £45,000 paid from Sep 2010 to Aug 2013.

    The inflation increase to April 2020 from August 2013 is 1.1137 so those 4 years are treated as being £50,116.
    2010 £50,116
    2011 £50,116
    2012 £50,116
    2013 £50,116
    Average for 3 years: £50,116

    Compare that to what would happen if they'd been treated as separate years:
    2010 = £45,000 x 1.2325 = £55,462
    2011 = £45,000 x 1.1856 = £53,353
    2012 = £45,000 x 1.1404 = £51,318
    2013 = £45,000 x 1.1137 = £50,116
    Average for 3 years: £53,377
     
  12. diddydave

    diddydave Lead commenter

    Yours will only change with CPI.
    The only other way it could change would be if you went back into the TPS.

    The 2nd part is a clarification (I hope) of how the revaluation works and is pointing out the significant unfairness that the rules have when you have a pay freeze over more than a year.

    The first set is what the rules have always done. The pay block is considered as running from 2010-2013, a pay change in 2014 triggers the revaluation, but it is applied to the whole block with just the inflation increase calculated from the end of the block.
     
    Piranha likes this.
  13. heldon

    heldon Occasional commenter

    thanks you diddydave
     
  14. letap

    letap Occasional commenter

    I have an oddity in my salary over the last year where the salary varied by £1 over that period - it has recognized each of those periods as separate periods. It will be interesting to see if they inflation adjust over the whole year - that would be brilliant and very unexpected.
     
  15. diddydave

    diddydave Lead commenter

    They will but before you get too excited it won't make much difference.
    Each period will be adjusted by figures given in the table but the variation will be tiny if any at all.
    When it comes to calculate your final salary it is the last 12 months (with no index revaluation) or your best 3 in the last 10. There's a good chance your salary this year won't feature in that calculation.
     
  16. OwerAuld

    OwerAuld Occasional commenter

  17. heldon

    heldon Occasional commenter

    think the economists are expecting a big rise in inflation post covid and if a brexit no deal
    so may be more than that next year.
     
  18. HannahD16

    HannahD16 New commenter

    What will such a scenario mean for pensions to be taken in the future? Am I right in thinking that the best three in ten adjusted for inflation could be a good thing for those of us planning to retire in say five to seven years down the line?
     
  19. Piranha

    Piranha Star commenter

    Wow. I hadn't realised that this was the case. Fortunately, it never affected me. Could schools get round this by giving a nominal increase in pay every year?
     
  20. diddydave

    diddydave Lead commenter

    The index-linking of the pension is very valuable...in effect what it buys today it will be able to buy tomorrow, next year, in 20 years etc. This is why you don't have to worry about working out whether the pension shown on your benefit statement will be enough in 10 years time...it will have the same equivalent value then as it does today.

    The one area that it can make a significant difference is for those teachers who have had, or who are going to have, a break in service before April 2022. Just so long as they have pay increases that are broadly in line with inflation. This is because if their salary when they finish is higher than it was at the break then all their years of service, up to April 2022, are used in the calculation - known as the unrestricted hypothetical calculation.
     

Share This Page