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Public service pension increases

Published Tuesday, February 4, 2020

Covers arrangements for uprating public service pensions.

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There is a statutory requirement to increase public service pensions in payment each year by the same rate as the additional State Pension (i.e. in line with prices). (Pensions Increase Act 1971 and Social Security Pensions Act 1975 ss59-59A. HM Treasury, Guidance on the operation of increase legislation for public service pension schemes, April 2016).

Switch to the CPI

Until April 2011, the measure of prices used was the Retail Prices Index (RPI). However, in the June 2010 Budget, the Coalition Government announced that it was switching to the Consumer Prices Index (CPI) (para 1.106). Because the CPI was expected to increase less quickly than the RPI, this had the effect of reducing the generosity of public service pension schemes and the cost of providing them (IFS, 2012 Green Budget, p110). The change was unsuccessfully challenged in the courts by public service trade unions. (R v Staff Side of Police Negotiating Board and Others; [2011] EWHC 3175 (Admin).

GMP increases

Until April 2016, the main public service pension schemes were contracted-out of the additional State Pension. Between 1978 and 1997, one of the conditions of contracting-out was the the scheme provided a Guaranteed Minimum Pension (GMP). This was designed to ensure that individuals were not worse off as a result of having contracted-out.

There was a complex arrangement for ensuring that the GMP was increased each year – with the pension scheme responsible for indexing part of it and the rest of it effectively delivered through the additional State Pension. For public servants, there were special arrangements to ensure that public servants received indexation on their GMP, while preventing double increases.

With the introduction of the new State Pension in April 2016, the additional State Pension (which formed part of these arrangements) was removed. While it looks for a permanent solution, the Government has put in place temporary arrangements, committing to full indexation of GMPs earned in public service for people who reach State Pension before April 2021 (HM Treasury, Consultation on indexation and equalisation of GMPs in public service pension schemes, updated January 2018).

Commons Briefing papers SN05434

Author: Djuna Thurley

Topic: Pensions

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