Commentary on Sections Indexation and revaluation Section 19: Indexation and revaluation
111.Section 19 amends four provisions concerning the indexation of defined benefit pensions in payment and the revaluation of the deferred pensions of early leavers from occupational pension schemes following the Government’s decision to use the CPI as the measure of increase in the general level of prices in place of RPI.
112.Subsections (1) to (3) amend section 84 of the PSA 1993 so that schemes which provide full uncapped revaluation of deferred members’ preserved pensions (including GMP rights) may do so without reference to the statutory revaluation requirements contained in section 84 provided they maintain (in the opinion of the Secretary of State) the value of pensions by reference to the rise in the general level of prices in Great Britain.
113.Subsections (4) to (6) provide for a new method of calculating revaluation additions by inserting a new paragraph 2A into Schedule 3 to the PSA 1993. The new method is the same as the existing statutory method for final salary schemes, but allows schemes to continue to calculate the revaluation addition as if the annual revaluation order was still calculated by reference to RPI. This means schemes that continue to mirror the statutory revaluation method but use RPI as the inflation measure would not also have to consider the statutory revaluation addition calculated using CPI. This new method is only available where the scheme rules require it.
114.Subsections (7) and (8) amend section 51(3) and 51(4) of the PA 1995 to allow schemes to continue increasing pensions in payment under provisions in scheme rules rather than under the statutory requirement contained in section 51(2). In place of increasing by reference to the RPI, schemes will be able to increase by RPI, the CPI or a combination of the two, depending on the rules of the individual scheme. Where schemes continue to increase pensions by RPI and have done so continuously from January 2011 (or when the pension first comes into payment if later), the amendments will ensure they need not carry out an annual comparison of the RPI under scheme rules and CPI under the statutory requirements and pay the higher of the two. This provision continues to apply in situations where members transfer from a scheme that has paid RPI based increases from January 2011 to another scheme that continues to pay RPI based increases.
115.Subsections (9) to (11) amend section 40(1) of the WRPA 1999 to allow the Secretary of State to prescribe that (as a minimum) pension credit benefit (arising from a pension share on divorce) paid by an occupational pension scheme must be increased by reference to the percentage increase in the general level of prices determined by the Secretary of State for the purpose of the statutory revaluation requirements.