Notes:- This requirement was introduced by SSA 1990 s.11 (now Pensions Act 1995 s.51): from an 'Appointed Day', since specified as 6 April 1997, retirement pensions (including spouse's pensions) under defined benefit schemes, which relate to service after 'A' day, must increase in payment in line with the RPI or 5% per annum, whichever is lower. This is called Limited Price Indexation (LPI).
- For pensions coming into payment on/after 6.4.05 from a defined benefit scheme (or any other type of scheme which is not a money purchase scheme), s.278 of the Pensions Act 2004 reduced the LPI ceiling, for the portion of the pension attributable to post-6.4.05 pensionable service, to 2.5%.
- A special measure was passed to prevent employers terminating schemes in order to strip out surplus before 'A' day and so avoid providing LPI on benefits accrued before 'A'. From 17 August 1990 no scheme surplus can be paid to an employer unless LPI increases for all pensions have been secured or consultations relating to a refund on the surplus to the employer were undertaken with the SFO prior to 17 August 1990 (LPI here does not apply to any GMP or money purchase benefits) [PA95 s.37(4)(d)].
- From 6 April 1997, all occupational schemes are required to apply LPI increases to pensions in payment accrued after that date. Exception: money purchase benefits coming into payment on or after 6.4.05 (no requirement for any indexation).
- The same annual rate (ie RPI up to a maximum of 5%) has applied to full early leaver benefits (excess over GMP only, if C/O), since 1 January 1991. The rate is announced in the annual Occupational Pensions (Revaluation) Order and is based on the RPI for the 12 months to the preceding 30 September and is published each December. It comes into force on 1 January.
- Originally there was a problem where the due date for increase fell between 1 October and the date the Revaluation Order was published, because the appropriate percentage could not be known before the September RPI figure was published. This has been solved by an amendment to the Pensions Act 1995 making the reference point the most recent Revaluation Order. [PA 1995 s.54(3) as amended by WRAPA Sch 2 para 13 (in force 25.4.00); SI2000/1047]
Occupational pension schemes (but not Appropriate Personal Pension Schemes) do have an alternative to the statutory definition of LPI (above), though. PA95 s.51(3) permits scheme rules to say that post-5.4.97 benefits shall be increased by the lesser of 5% (or 2.5%, as appropriate; see note 2. above) and the RPI figure for any 12 month period specified in the scheme rules (eg perhaps ending 3 months before the annual increase date, to allow time for the necessary administration).
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