Pensions Bulletin 2023/41
Pensions & benefits Pensions dashboards Policy & regulation
- Price inflation and earnings figures set the scene for next year’s pension increases
- Pensions Dashboards Programme marks time with a “recap” blog
Price inflation and earnings figures set the scene for next year’s pension increases
On 18 October 2023 the Office for National Statistics announced that the Consumer Prices Index (CPI) had risen by 6.7% over the twelve months to September 2023. Over the same period the Retail Prices Index rose by 8.9%. A day earlier the ONS released its latest earnings figures, which amongst other things contained a confirmation that the KAC3 average weekly earnings data (total pay, seasonally adjusted) for the three months to July 2023 was an 8.5% increase on the same figure 12 months prior.
These announcements set the scene for the calculation of a number of pension increases next year.
State pensions
We understand that the KAC3 figure above is what the DWP ordinarily uses to determine the earnings element of the state pension “triple lock”. So, assuming the triple lock formula continues to operate in full, the earnings element of 8.5% should drive next April’s increases, being higher than the CPI figure of 6.7% and 2.5%. Therefore, the Basic State Pension (currently £156.20 pw) and the full rate of the Single Tier State Pension (currently £203.85 pw) should increase in April by 8.5%. However, there have been some suggestions that a lower earnings figure will be used. We should know what the Government has decided when the Autumn Statement is delivered on 22 November 2023.
SERPS and S2P entitlements in payment should increase by 6.7% next April.
Occupational pensions
Next year, schemes that use September CPI as a reference point and apply the Limited Price Indexation rules to pensions in payment will have to increase them by at least 5.0% for the pension that accrued between 6 April 1997 and 5 April 2005 and by at least 2.5% for the pension that accrued after 5 April 2005. Both fall short of price inflation and, as a result, some trustees may be asked, once more, to consider discretionary top-ups.
GMPs that accrued after 5 April 1988 should increase by 3.0%.
For pensions in deferment, the statutory minimum uses September inflation as a reference point and the revaluing of any pension in excess of GMP will reflect the CPI of 6.7%, but subject to how the overriding cumulative cap bites in each case. The 6.7% increase may come through in full (along with last year’s 10.1% increase), so long as there are sufficient earlier periods of low inflation during the deferment period. However, for members who retire at or before normal pension age in 2024 after just one year since leaving, the required minimum revaluation of that part of a deferred pension in excess of any GMP should only be 2.5% for the 2.5% capped order and 5.0% for the 5% capped order.
The above comments relate to statutory minima. Many schemes will have increases in their rules that are in excess of this in some areas and use different inflation reference months in other areas.
Pensions tax
For members accruing defined benefits or cash balance, the September-to-September CPI is key to annual allowance calculations. The 6.7% increase is effectively the inflation allowance made before the annual allowance starts to be used up in the 2024/25 tax year.
Comment
CPI inflation has eased from the 10.1% figure this time last year which, in particular drove increases to State pensions, but it looks like State pensions will again increase significantly, thanks to the triple lock. For DB pensions, with inflation remaining at elevated levels, inflation risk remains an important factor when considering schemes’ approaches to funding and investment.
Pensions Dashboards Programme marks time with a “recap” blog
In a “common questions on dashboards” blog published on 12 October 2023, Chris Curry, PDP Principal, reiterates that pension providers and schemes will be “advised to connect to dashboards according to the timeline” to be set out in guidance, which will group schemes and providers together over different stages in connection windows. This is to work in a similar way to the previous staging profile whose abandonment was announced in March 2023.
As to the guidance itself, it still seems that it is not going to be published for some months yet. And on other matters, we are reminded that the FCA will be sharing updates soon on its proposed regulatory framework for dashboard services, and the PDP is refining its design standards that set out the requirements for displaying pensions information.
Comment
One can’t help but feel that the steam has gone out of this project for much of 2023, but it should be re-energised with the promised publication of a progress update report that is to highlight delivery for the next six months. And one of the many challenges for trustees is that of data-matching on which we have recently set out some pointers.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
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