Increasing pensions in payment
Increasing pensions in payment

The following Pensions practice note provides comprehensive and up to date legal information covering:

  • Increasing pensions in payment
  • Statutory requirement to increase pensions in payment
  • Scope of statutory requirement
  • Schemes to which the statutory requirement does not apply
  • Statutory minimum increase rates
  • Timing of statutory minimum pension increase
  • Change in basis of statutory pension increases from RPI to CPI
  • General
  • Changing the scheme rules to reflect CPI
  • Statutory increases to pension credits
  • More...

THIS PRACTICE NOTE APPLIES TO ALL OCCUPATIONAL PENSION SCHEMES

Statutory requirement to increase pensions in payment

Since 6 April 1997, there has been a statutory requirement to protect pensions in payment from the effects of inflation. This requirement is known as indexation. The Pensions Act 1995, s 51 (PA 1995) sets out the minimum rate by which occupational pension schemes must increase members' pensions annually after they come into payment.

Schemes may, if they wish, grant more generous pension increases to members than the minimum required by statute. Where schemes grant more generous increases in a particular year, they may offset the amount of the excess increase against the statutory minimum increase required the following year.

Scope of statutory requirement

For the purpose of PA 1995, s 51, 'pension' means any pension in payment or annuity under the scheme. This includes not only a member's pension but also a spouse's pension or a dependant's pension. However, this will not include annuities bought outside the scheme. In practice, few money purchase schemes offer pensions that would fall under the scope of PA 1995, s 51.

The statutory increase requirement applies to pensions derived from:

  1. benefits accrued on or after 6 April 1997 (this includes section 9(2B) rights, ie contracted-out benefits accrued on a salary-related basis on and from 6 April 1997)

  2. transfer payments made from schemes that were also

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