11 May 2011
All NHS Pension scheme members should be aware that from the 1st April 2011, the measure by which pensions are increased each year has changed from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). This announcement was made by the Chancellor of the Exchequer in his Emergency Budget in June 2010.
Who does it effect and how?
It will primarily affect:
A - NHS Pensioners (i.e. members who have retired and claimed their benefits)
Those in receipt of their pension will see their annual pension increase by CPI each year instead of RPI from April 2011.
(Note – The Pensioners Newsletter distributed in April 2011 provides more details about this. The increase applied in April 2011 will be 3.1%.)
B - Deferred Members
How the future uprating of deferred pension rights will change. The yearly uprating of pensions will be based on CPI from April 2011 with all uprating before April 2011 continuing to use RPI.
As a simple example, if RPI was 5% in Yr1, and CPI is 3.1% in Yr2 then the value of the pension would increase as follows.
Year 0 - £100
Year 1 - £105 (5% RPI Increase)
Year 2 - £108.26 (Year 1 + 3.1% CPI Increase)
(Note – We have written to all deferred members (for whom we hold current addresses) to advise them about these changes.)
C - Members who have already have, or are considering, an additional pension contract
The way new Additional Pension (AP) contracts are calculated post April 2011 has changed. This is explained below:
AP purchased is increased in line with monthly increases in the rate of inflation both before the AP comes into payment (“a pre-payment increase”) and also whilst it is being paid (“an in-payment increase”). If the application to buy AP was made:
• On or before 31 March 2011 – it will attract pre-payment increases in line with the Retail Prices Index (RPI) and in-payment increases in line with Consumer Prices Index (CPI).
• On or after 1 April 2011 – both the pre-payment and the in-payment increases will be in line with the CPI.”
(Note - We have updated various website pages relating to Additional Pension).
What else is happening?
As you can see from above we planned a number of communication activities to inform members about these changes.
The main activities are listed below:
We will include a message on the majority of members payslips in May 2011 and have encouraged all scheme employers to advise their staff via their own internal communication channels using information materials provided.
We have included a message on this change in our annual pensioner newsletter which was distributed in April 2011.
We have written to all deferred members for whom we hold a current address to notify them about these changes.
Note: The legislation governing the uprating of public sector pensions allows the Government to choose any appropriate measure to reflect general changes in prices. The Government has decided that the Consumer Prices Index (CPI) is an appropriate index to use going forward to provide protection against inflation from 1st April 2011. CPI is also used to set the inflation target by the Bank of England.