For retirements from 1 January 2008
Parts of your pension may receive different increases:
- Pension you built up before 1 January 2008 goes up each year in line with inflation up to 5% (apart from any GMP element).
- Pension you build up from 1 January 2008 with 7% contributions goes up each year in line with inflation up to 3%.
- Any pension you build up with 8.5% contributions will go up each year in line with inflation up to 5%.
The RPI figures that have been used for the last five years are as follows:
| 2011 | 5.0% |
| 2010 | 3.7% |
| 2009 | 0.1% |
| 2008 | 4.1% |
| 2007 | 4.2% |
For more information on your pension increase, please refer to the latest 'Your pension' newsletter available in the downloadable documents area.
To give a simple example, say you have five years of pensionable service before 1 January 2008 and five years after (with 7% contributions). Once your pension starts, half your pension (not counting any GMP ) increases in line with inflation up to 5% and the other half in line with inflation up to 3%.
So, if inflation is 4% in the first year of your retirement, half your pension goes up by 4% and the other half by 3%.
Please note that you will only receive higher increases on pension you have built up with 8.5% contributions in years when inflation is above 3%. So, in a year when inflation is 4%, any part of your pension you built up with 7% contributions increases by 3% that year. Any part of your pension you built up with 8.5% contributions increases by the full 4%.
So, if your overall pension from your 10 years’ pensionable service is £4,000 a year in the first year of your retirement, this is the effect of 8.5% contributions on your pension:
| Your pension increases (assuming inflation rate is 4%) |
Contribution rate | |
| 7% | 8.5% | |
| For 5 years’ pension before 1 January 2008 | £80 | £80 |
| For 5 year’s pension from 1 January 2008 | £60 | £80 |
| Total pension increase | £140 | £160 |
However, if inflation is lower than 3%, you receive the same increase as a member on the 7% contribution level, even though you chose 8.5% contributions.
So, if inflation was 2.5%, the 8.5% contributions would make no difference to the increase the example pension receives:
| Your pension increases (assuming inflation rate is 2.5%) |
Contribution rate | |
| 7% | 8.5% | |
| For 5 years’ pension before 1 January 2008 | £50 | £50 |
| For 5 year’s pension from 1 January 2008 | £50 | £50 |
| Total pension increase | £100 | £100 |