Deferred pension increases calculated by "simple interest"

[border]

I've been told that in Section C the increases are calculated on a simple interest based calculation ie there is no compounding
I've tried to get confirmation of this from the Pensions Helpline but without success so far
Surely the amounts should be compounded?
can anyone confirm this?

[RobertT]

The pension benefits for deferred members (those who have left RM) are now increased in line with CPI (Consumer Prices Index) rather than RPI (Retail Prices Index). CPI has historically been lower, so increases will probably be smaller. So I can't see why increases will not be compounded.

Current / active members of Section C will continue to earn their pension as before, based on salary and years worked.

Good luck with the Pensions Helpline, I've always found them completely useless!

[vanman]

The pension benefits for deferred members (those who have left RM) are now increased in line with CPI (Consumer Prices Index) rather than RPI (Retail Prices Index). CPI has historically been lower, so increases will probably be smaller. So I can't see why increases will not be compounded.

Current / active members of Section C will continue to earn their pension as before, based on salary and years worked.

Good luck with the Pensions Helpline, I've always found them completely useless!

I'm not sure this statement is entirely correct.

As far as I know the change to using CPI only affects Sections A/B of the scheme, as the use of RPI is specifically written into the terms for Section C.

Check the Pensions Plan website.

[teesdale]

If you leave Royal Mail though and you are in pension section C, you get another job and become a deferred member, your section C then gets calculated at CPI. So as more of us leave as the amount of mail falls over the years Royal Mail saves more money on payments. Section C looks good at the moment but as soon as you leave you get treated as if you were in section A or B. How many on section C now will honestly be here at 65. The loss though may be cancelled out by the plans to put the state pension up to £140 per week.

[border]

it's CPI now for Section C..

Clearly the government have put pressure on the scheme..

In a letter to members dated "August 2011" (but only just received!)

"Section C Deferred members: implications for your pension benefits of the Government announcments regarding future pension increases
..
..
In summary, as a member of Section C, future increases on your deferred pension and to your GMP in payment will be based on the CPI measure of inflation rather than the RPI measure of inflation. As CPI tends to increase more slowly than RPI, this change is expected to mean that you Plan pension will in future increase by less over time than if the Government had kept to the RPI Basis"

[RobertT]

The loss though may be cancelled out by the plans to put the state pension up to £140 per week.

The possible increase to £140 per week sounds good on paper, but if you have large SERPS/S2P entitlements from jobs that weren't contracted out or if you're in a salary based scheme, like us, you may not get the full amount. Read this for more info.

Clearly the government have put pressure on the scheme..

More like RM are taking advantage of recent government changes.

[LEMOND85]

I spoke to the pensions helpline yesterday regarding Section C deferred pensions. They provided confirmation that the increase this year was based on CPI in September 2010 (3.1%). They then went on to say that deffered Section C pensions had also been reduced by 1.4% this year to reflect the -1.4% RPI figure in Septemner 2009. Apparently the -1.4% reduction should have been applied to deferred pensions in April 2010 but hadn't been so they had retrospectively applied it in April 2011. So in effect the rise in Section C deffered pensions in April 2011 was only 1.7% (i.e. the 3.1% CPI figure minus the 1.4% September 2009 RPI figure). I did suggest that this is something they might consider communicating to Section C deferred pension holders - they said they might consider this if I submitted the suggestion in writing.