Defined Benefit Normal Pension Increase Rates When Deferred
Published / Last Updated on 02/06/2020
Revaluation of ‘NORMAL’ pension rights for a defined benefit pension scheme (not the ‘Contracted Out’ of SERPS, GMP element) are known as ‘Excess over GMP’ revaluation.
NOTE: Your pension scheme may offer higher revaluation rates than the legal minimums below.
When you leave a defined benefit pension scheme, it is not necessarily ‘frozen’ in time, some parts of it may be revalued to keep it ‘growing’ as close to inflation as possible. The minimum revaluation rate increases are dependent on the date of leaving service as follows:
- Left Prior to 1/1/86 = ZERO, there is no statutory requirement to revalue normal (excess) pension rights
- Left 1/1/86 – 31/12/90 = Minimum of ‘inflation’ capped at 5% pa (known as Limited Price Indexation LPI) BUT only for benefits accrued from 1/1/85.
- Left after 01/01/91 = Minimum of ‘inflation’ capped at 5% pa (known as Limited Price Indexation LPI) FOR ALL PAST BENEFITS.
CHANGES to inflation rates and 5% cap: Pensions Act 2008 reduced the 5% cap to 2.5% pa from 6 April 2009 and Pensions Act 2011 changed the measure of ‘inflation’ above from Retail Prices Index (RPI) to the Consumer Prices Index (CPI) from 6 April 2011.
