A Guide to Pensions Increase

This factsheet explains what Pension Increase is and how it affects your pension if in payment, or your deferred benefit.

What is Pensions Increase?

Local Government pensions increase each year to protect them against rises in the cost of living. This is called ‘pensions increase’ or ’PI’ for short.

The increases are paid from the first Monday of each new tax year (the same day as increases to State Pensions) and are usually based on the annual inflation rate from the previous September, as measured by the Consumer Price Index (CPI). Increases were based on the Retail Prices Index (RPI) until April 2010, with CPI being used from April 2011 onwards.

The tax year begins on the 6 April so the first Monday can be anything between 6 and the 12 of April. This means that every April, your pension will be made up of a portion of the  month at the old rate and a portion of the month at the increased rate.

Who receives a Pensions Increase?

Pensions increase is paid to all pensioners aged 55 or more. If you were retired on ill-health grounds or became permanently unfit for regular work after retiring, the pensions increase may in most cases be payable if you are under the age of 55.

PI is paid at any age if the pension is a widow’s, widower’s partner’s or child’s
pension.

Is all of my pension increased?

Pensions increase is added to the whole of the pension being paid at the time, including any previous increases. However, if you were contracted-out of the state pension scheme between 6 April 1978 through to 5 April 1997, you may find part of the increase being paid by us and part being added to your state pension. This will be explained in more detail in the next section.

How will the increases be paid?

If your pension is based on membership which includes membership between 6 April 1978 and 5 April 1997, you were contracted out of State Earnings Related Pension Scheme (SERPS) and so paid less national insurance. Therefore, you may have earned a Guaranteed Minimum Pension (called a GMP for short). If you have, then at your state retirement or straight away in the case of a widow’s, widower’s or civil partners pension, Her Majesty’s Revenue & Customs (HMRC) should inform you of the amount of GMP you are entitled to.

From that date, your pensions increase would normally be paid in two parts:

With your State Pension, you’d get the increase on any GMP earned before the 6 April 1988, together with any increase above 3% on any GMP earned from the 6 April 1988 onwards.

With your pension from us, we would pay the increase up to 3% on any GMP earned from 6 April 1988 onwards, together with all of the increase on the rest of your pension (except on any GMP earned before 6 April 1988).

If this sounds complicated, the easy version is that your increases would be split between the State scheme and the LGPS, but between the two, you’ll get the full increase each year.

If you don’t have any GMP entitlement, your pension administrator will pay the full increase.

You said ‘normally’: what are the exceptions?

You won’t receive any GMP increases with your State pension if any of the following
apply:

• You live abroad in a country that has no Social Security arrangement with the UK.
• You’ve reached State pension age but have delayed taking your State pension.
• You’re temporarily disqualified from getting State pension because you’re in prison.
• You have an additional State pension that is less then your GMP. If this applied to you, the DWP (Department of Work & Pensions) would tell you.
• You are a widower under age 65, your late wife was under 60 when she died, and you don’t get a widower’s invalidity pension.

In all these cases, the full increase would be paid with your LGPS pension, so you will not lose any increase due to you.

When does Pensions Increase start to be added to my benefits?

Benefits usually ‘begin’ for PI purposes on the day after you leave. So if you left on 30 June, for instance, the increase in the following April would be calculated from the 1 July onwards; and would therefore be 9/12 (i.e. three quarters) of the years total increase. Every following April, you would receive the full year’s increase.

If the benefits were based on an earlier year’s pay, because of a drop in pay, the start date for working out PI would be the day after the end of that earlier year. If the benefits are from a divorce credit, the start date for working out PI would be the date of the divorce or (if later) the date of the Court Order that created the credit.

When the first increase on your pension is calculated, it is possible that HMRC may not have informed your Pensions administrator the exact amount of any GMP. If that is the case, an estimated figure is used, and it may be necessary to adjust your pensions increase up or down accordingly when the correct information is received.

How does PI affect deferred benefits?

Deferred benefits increase each year before they come into payment as well as after, in exactly the same way as pensions in payment. So your benefits should give you approximately the same spending power when you receive them as when you left your employment.

 

Disclaimer
Please note: this is intended as a broad guide to your benefits in the local Government Pension Scheme. It does
not seek to cater for every different circumstance and no decisions should be taken based on its contents. You are
strongly advised to consult our website and/or contact us for more detailed and individual information before taking any
action in relation to your pension. Nothing in this fact sheet overrides the regulations which govern the LGPS and
which are subject to amendment from time to time.