Increasing Public Service Pensions

Public service pensions in payment are increased to take account of increases in the cost of living.

The increases are paid on approximately the same date as increases in State benefits and they are related to the increase in the State Earnings Related Pension. Preserved pensions and lump sums are also increased to maintain their value.

Retired civil servants, local government employees, teachers, employees of the National Health Service, police and firemen. There are also many smaller groups such as;  Widows, widowers and dependants, whose pensions are covered under these public service schemes. Pensions provided by public servants allocating part of their own pension in favour of a dependant are also covered.

Pensions Increases are normally only paid to pensioners aged 55 or over. This age limit does not mean that anyone who wishes can retire at 55, it simply ensures that increases can be paid from that age (but not earlier) to people who have early retirement ages, such as policemen and firemen, and to those who are retired prematurely. Increases are paid to people who are below age 55 only if the person concerned:

• Is receiving a widow’s, widower’s or children’s pension, or certain injury pensions; or
• Is retired on the grounds of ill-health, or has become permanently unfit for regular full time work since retiring; or
• Is a woman with a dependant child (but for pensions commencing on or after 1 January 1993, only the fraction of her pension earned by service before 1 January 1993 will be increased); or
• Is a dependant of a public servant and receives a pension granted as a result of the surrender of the whole or part of the public servant’s pension.

Yes. They are applied to the full pension actually in payment, whether or not this includes previous increases. However, if a pension has been reduced during re-employment or because of National Insurance modification, or if part of it has been allocated in favour of a dependant, the increase applies only to the amount actually in payment.

If your pension was based wholly or partly on service after 5 April 1978, which was contracted out of the State pension scheme, then you may have earned a Guaranteed Minimum Pension (GMP).

If you have, then at age 60 for women, 65 for men or following your spouse’s death in the case of a widow’s or widower’s pension, HM Revenue & Customs (HMRC) will calculate and inform you of the amount of your GMP. Subsequent increases will then normally be calculated and paid in two parts from two sources:

• with your State widow’s benefit, widower’s invalidity pension or Retirement Pension (the “old age pension”) HMRC will pay any increase related to your GMP earned before 6 April 1988 and any increase above 3% on any GMP earned from 6 April 1988; and
• with your public service pension, the scheme will pay any increase up to 3% due on any GMP earned from 6 April 1988, together with any increase due on the balance of your public service pension. The increase on the balance will be calculated on the pension in payment less your GMP, not the full pension.

Where you do not have an entitlement to a GMP under the State pension scheme, the whole increase will be paid with your public service pension.

At the time the pension paying authority first calculates the increase on your public service pension it may not have been notified of the amount of GMP to which you are entitled, or whether the increase of your GMP will be paid by HM Revenue & Customs. In these cases, schemes may use provisional figures to calculate your GMP and then adjust any overpayment or underpayment in subsequent pension payments.

Most public service pensions will receive the percentage increase that applies to the State Earnings Related Pension.

This increase is based on the rise in consumer prices. The increases are paid annually in April and are based on the increase in consumer prices in the twelve months up to the end of September in the preceding year. But pensions which have begun since the last increase date and have therefore not yet been increased will receive an increase based on the number of months between the time when the pension began and the time when the increase takes place.

In this calculation a part month of more than 15 days is rounded up to a complete month.

A pension or lump sum usually begins for pension increase purposes on the day after the last day of the service in respect of which it is payable. In this way the purchasing power of preserved pensions and lump sums is maintained. But no increases are payable until the benefits actually come into payment.

Pensions and lump sums which are based on pay received in a period ending earlier than the last day of service are deemed to begin on the day following the end of that period. This applies particularly to pensions and lump sums which are revised following re-employment and which are based on pensionable pay at the time of original retirement although it can, in certain cases, also apply to original awards.

Widows’, widowers’ and children’s pensions awarded when a public servant dies are treated as having begun on the same date as the pensions from which they derive. Substituted pensions are treated in the same way unless the pension was surrendered before the original pension began.

For pensions already in payment the increase takes effect from the first Monday in each tax year, which commences on 6^th April each year.

In most cases, the first payment to include the increase will be partly at the old rate and partly at the new rate. Later payments will be wholly at the new rate. For pensions coming into payment after that date, any increase due will be paid with the pension when it comes into payment.

If you are a pensioner receiving increases for the first time, because, for example, you have attained the qualifying age of 55, or are entitled to a pension (such as a preserved or a widow’s pension) which ‘began’ earlier and now comes into payment after a gap, then you will receive in addition to the latest increase, the cumulative effect of any previous increases which have accrued in the interval between the beginning date and the latest increase.