A new pension anomaly coming up

oldbaldy

LE
Moderator
#1
We hear from our beloved Chancellor that pay in the public sector is being resticted to a max of 1% and as far as we know this will include the Armed Forces.
As you know your final pension is linked to pay & pensions each year go up by approx the same as the pay for your rank.

So if in April 2011 you retired on a pension of say £10k, it stands to reason in April 2012 someone of the same rank & service will retire on £10,100.
However!
The person who retired in April 2011 will get an uplift of £520, (CPI of 5.2%) ok you might not get it until your 55 but these things are worked on a compound basis. So the pensioner of 2011 is better off than the pensioner of 2012. Some people are going to have to do some serious thinking.

This last happened in the 1970s & people are still feeling the repercussions of it.
 
#2
There was a discussion about a similar issue to this on PPRUNE and it was posted on there that the Forces Pension Society had been involved in talks with the government. Something to do with "Dynamising" our pension, basically due to the lack of any salary increases, service members retiring 2012 / 2013 could find themselves in a "Pension trough". The FPS has managed to negotiate the same increases in these pensions that individuals who retired before the pay freeze are entitled to. While you might not be getting a pay rise if you're still serving you're pension is still rising.

Can't vouch for the accuracy of the statement, maybe someone on here is an FPS member and can enlighten us?
 

oldbaldy

LE
Moderator
#3
In fact this is the second year, I as a pensioner, received a higher increase in percentage terms than the uplift in pensions for those retiring in 2011.
 
B

bokkatankie

Guest
#4
In fact this is the second year, I as a pensioner, received a higher increase in percentage terms than the uplift in pensions for those retiring in 2011.
Well my 10 pounds a month uplift to my 50% war pension will be welcome.
 

oldbaldy

LE
Moderator
#5
This is a problem with a retired persons pension. Two completely different animals.
 
B

bokkatankie

Guest
#6
This is a problem with a retired persons pension. Two completely different animals.
No it is a problem with those about to retire. Those that retired many years ago did so at a much lower wage anyway so whilst I agree there may be a pending anomaly, it is just one of things.
 

oldbaldy

LE
Moderator
#7
No it is a problem with those about to retire. Those that retired many years ago did so at a much lower wage anyway so whilst I agree there may be a pending anomaly, it is just one of things.
Yes those who retired many moons ago, like myself, have nothing to worry about. I'm merely flagging up that those who retire in 2012 will have a lower pension in that year than those who retired in 2011.
 
#8
We hear from our beloved Chancellor that pay in the public sector is being resticted to a max of 1% and as far as we know this will include the Armed Forces.
As you know your final pension is linked to pay & pensions each year go up by approx the same as the pay for your rank.

So if in April 2011 you retired on a pension of say £10k, it stands to reason in April 2012 someone of the same rank & service will retire on £10,100.
However!
The person who retired in April 2011 will get an uplift of £520, (CPI of 5.2%) ok you might not get it until your 55 but these things are worked on a compound basis. So the pensioner of 2011 is better off than the pensioner of 2012. Some people are going to have to do some serious thinking.

This last happened in the 1970s & people are still feeling the repercussions of it.
Oldbaldy is, of course, quite right in respect of AFPS 75 members. There is a degree of protection for those in AFPS 05 because of dynamising. That means that those who retired in AFPS 05 would have their final pensionable salary assessed on the best 365 consecutive days pensionable pay in the last three years - this means that pay, which was paid over 12 months before, is inflated in line with the inflation factor (currently CPI) prior to comparison.
 

oldbaldy

LE
Moderator
#9
Thanks for that FPS. I didn't realise there was a difference in this for 75 and 05 members. As I say some people are going to do some serious thinking & I can only suggest they speak to a pensions specialist or your goodselves about their particular situation.
 
#10
Yes those who retired many moons ago, like myself, have nothing to worry about. I'm merely flagging up that those who retire in 2012 will have a lower pension in that year than those who retired in 2011.
How much lower (By the time they are 65)? Is it going to be a massive difference?
 

oldbaldy

LE
Moderator
#11
The problem is Stacker, no one knows as these things are compounded & we also don't know how many years this same thing will go on for.
 
#12
The problem is Stacker, no one knows as these things are compounded & we also don't know how many years this same thing will go on for.
Won't the person who retires in 2012 also get an uplift (in 2012) leveling it out?
 

oldbaldy

LE
Moderator
#13
No because as I say these things are compounded.
For instance.
A pensions is awarded at £10K in 2011
In 2012 there is an increase of 5.2% making at new rate of £10520.
In 2013 a further increase of say 5% making a new rate of £11046.

Because pay rates and so pensions have not increased the intitial pension of someone retiring in 2012 remains at £10K.
In 2013 he get the 5% and so pension increases to £10500.
So the person retiring in 2011 is £546 pa better off in 2013 than the one retiring in 2012 and as I say these are compounded and each subsequent year difference will get wider.
 
#14
No because as I say these things are compounded.
For instance.
A pensions is awarded at £10K in 2011
In 2012 there is an increase of 5.2% making at new rate of £10520.
In 2013 a further increase of say 5% making a new rate of £11046.

Because pay rates and so pensions have not increased the intitial pension of someone retiring in 2012 remains at £10K.
In 2013 he get the 5% and so pension increases to £10500.
So the person retiring in 2011 is £546 pa better off in 2013 than the one retiring in 2012 and as I say these are compounded and each subsequent year difference will get wider.
I'm not following this, the 2011 bloke is 546 better off because he has had a years more interest. Somone who retires in 2010 will (presumably) have one more years interest than the 2011 bloke (and so on as you go further back)
 

oldbaldy

LE
Moderator
#15
Your right as far as you go but in each of the years going back there was an increase in starting pension because of the incease in salary, there will be no increase, as far as we know, in 2012 hence the anomoly.
 
#16
Your right as far as you go but in each of the years going back there was an increase in starting pension because of the incease in salary, there will be no increase, as far as we know, in 2012 hence the anomoly.
While its an anomoly unless the CPI rate is massively different in 2012 it wont (shouldnt make much of a difference). The longer someone has a pension the more they will (should) have than someone who gets it a year after them.
 

oldbaldy

LE
Moderator
#17
#18
I've tried to explain the best I can.
Have a look at this article about the last time it happened:
Veterans lose out in pensions lottery - Telegraph

and a previous posting:
http://www.arrse.co.uk/armed-forces...confirm-your-pension-frozen-lost-forever.html
Ive just read the article and it still doesnt explain what you are trying to say.

Lets say in 2000 someone gets a 10k Pension and over the next 10 years inflation goes through the roof so in 2010 his pot is worth say 25k (Figure are just made up)
Someone else in 2000 has ten years to serve and get an average pay rise of 2% (I cant be arsed working out compound interest so we'll say his pot is now worth 20k.
Inflation is brought under control in 2010 so they both get 3% for the rest of their lives. the bloke who leave in 2000 is always going to have more because his pension has been getting interest longer.
Unless CPI is directly linked to wages wont this always be the case?
 
#19
The problem here is that pay inflation is running behind CPI. So even though in the 1% period pay is going up for both AFPS 75 and 05 members, CPI is outstripping it.

Lets say a Cpl with 22 yrs service leaves in April 10 with a pension of £13K. His pension will be uplifted (even if he is too young to receive pension increases - in which case the rise is held in a shadow account until he is 55) by 3.1 % the next April. Because there is no pay rise this year an AFPS 75 Cpl with 22 yrs will leaving this April will leave with a £13K pension - but the chap who left the year before is already getting 3.1% more. When this second chap gets his CPI rise of 5.2% in April 12, the first chap's pension will now be increased by 3.1% and a further 5.2%. Thus the problem is compounded year on year.

With a 1% pay rise, the people leaving in the previous years will still be better off than the person who leaves in later years.

In AFPS 05 there is a degree of dynamising (looking back and inflating, then choosing the best of three years' pay) but this will not prevent a trough - what it will do is turn peaks into curves as it evens out the big differences.
 
#20
Hi guys, just copied this from another forces site, it would appear that the bank of England and Courts pensions are going to use the RPI,instaed of us numpties on the CPI.
I have no idea how true this information is!

Two weeks ago I asked the Bank of England on the telephone which
inflation index was going to be used in 2011 to increase Bank
of England and Court pensions. The pensions are increased in
July. They refused to answer on the phone so I submitted a Freedom
of Information request. Yesterday I received a letter from the
Deputy Secretary of the Bank of England which was the Bank's
reply to my pension increase FOI question. The Deputy Secretary
wrote: "The RPI will be used for calculating increases in 2011."

It may come as a surprise to learn that Bank of England and Court
pensions will be increased in 2011 by the RPI, a measure which
is not consistent with the inflation measure used by the Bank
of England! You couldn't make it up.
 

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