Barnett Waddingham - Revaluation for Early Leavers (2024)

What trustees and sponsors of pension schemes need to know about revaluation for early leavers

When a member of a final salary pension scheme leaves, having completed at least twoyears’ service, they become entitled to a preserved pension in respect of the benefits that have accrued during their membership of the scheme. The preserved benefit remains in the scheme until the member retires, dies or decides to transfer the benefit elsewhere.

In order to prevent the value of a preserved benefit diminishing over time through the effect of inflation, revaluation was introduced to preserved benefits.

The benefits earned and the revaluation applied is dependant on the rules of the pension scheme and the legislation in place at the time. It is therefore important to have an understanding of the historical position that applied to such individuals.

Key legislation and dates

Legislation	Effective	Key features
Social Security Act 1973	6 April 1975	Introduced preservation – members had to be over age 26 and have at least 5 years qualifying service to qualify for preserved benefits.
Social Security Act 1985	Leavers on or after 1 January 1986	Introduced revaluation to preserved benefits in excess of Guaranteed Minimum Pension (GMP) earned after 1 January 1985.
Social Security Act 1986	6 April 1988	Qualifying service for preserved benefits reduced from 5 years to two years.
Social Security Act 1990	Leavers on or after 1 January 1991	Revaluation extended to cover the whole of the member's pension, in excess of the GMP. Annual increase applicable was the increase in the Retail Price Index (RPI), capped at 5% (sometimes known as 5% Limited Price Indexation - LPI).
Pensions Act 2008	Post 6 April 2009 accrual	Allowed schemes to reduce the revaluation percentage from RPI capped at 5% a year (as above) to RPI capped at 2.5% for pensions accrued after 6 April 2009.
Pensions Act 2011	6 April 2011	Consumer Prices Index (CPI) replaced RPI as the basis for the minimum statutory revaluation. Rules for the pension scheme will determine whether this change was applied to benefits.

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Revaluation of benefits in excess of Guaranteed Minimum Pension

Preserved benefits in excess of Guaranteed Minimum Pension(GMP) must be increased for each complete year in the period of deferment. The increase applied is notified each year when the Secretary of State makes an Occupation Pensions (Revaluation) Order (known as Section 52a orders). Each revaluation period begins on a 1 January and ends on the 31 December prior to the order coming into effect.

The factor to apply for a preserved member retiring in 2012 will be that for which the revaluation period contains the same number of complete years as the period of deferment. If we take the following scenario*

member's date of leaving is 30 January 2004
normal retirement date (NRD) 5 January 2012

There are seven complete years between date of leaving and normal retirement date. The target is therefore the 2012 and 7 Years in the table below. In this example, the increase applicable is 24.1%

Year	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003	2002
Complete years
1 Complete Year	5	3.1		5	3.9	3.6	2.7	3.1	2.8	1.7	1.7
2 Complete Years	8.5	1.7	3.5	9.1	7.6	6.4	5.9	6	4.5	3.4	5.1
3 Complete Years	6.9	6.7	7.6	13	10.5	9.7	8.8	7.8	6.3	6.8	6.2
4 Complete Years	12.3	10.9	11.4	16.1	14	12.8	10.7	9.6	9.8	8	9.6
5 Complete Years	16.7	14.9	14.4	19.7	17.2	14.7	12.6	13.2	11	11.5	13.6
6 Complete Years	20.9	18	18	23	19.2	16.6	16.3	14.5	14.6	15.5	15.9
7 Complete Years	24.1	21.7	21.3	25.1	21.2	20.5	17.6	18.1	18.7	17.9	20.5
8 Complete Years	28	25.1	23.4	27.2	25.2	21.8	21.3	22.4	21.2	22.5	23.1

*In the example shown, it is assumed that the Scheme has adopted CPI revaluation to all benefits and has not reduced the revaluation to 2.5% for benefits accrued post 6 April 2009.

How much of a member’s benefits are subject to revaluation by Section 52 orders is dependent on when the member became preserved as shown in the following table:

Date of leaving	Revaluation
Before 1 January 1986	No revaluation on benefits in excess of GMP.
From 1 January 1986 to 31 December 1990	No revaluation on benefits in excess of GMP earned prior to 1 January 1985. Section 52a orders on benefits in excess of GMP earned after 1 January 1985.
On or after 1 January 1991	Section 52a orders on all excess pension.

Revaluation of Guaranteed Minimum Pension

Any GMP element of a preserved pension must also be revalued, but the method is different to revaluing excess benefits. Currently, trustees have the choice of two different methods of revaluing GMPs: Full Rate increases or Fixed Rate increases. Schemes which opt for increases at Full Rate increase their GMPs annually in line with Section 148 Orders (previously known as Section 21 Orders). Section 148 Orders are based on the increase in the National Average Earnings Index each year.

Fixed Rate revaluation increases are determined by the date of termination of pensionable service. The annual percentage increase is fixed and depends on the date of leaving as follows:

Date of Leaving	Annual Percentage Increase
Between 6 April 1978 and 5 April 1988	8.50%
Between 6 April 1988 and 5 April 1993	7.50%
Between 6 April 1993 and 5 April 1997	7.00%
Between 6 April 1997 and 5 April 2002	6.25%
Between 6 April 2002 and5 April 2007	4.50%
Between6 April 2007 and 5 April 2012	4.00%
After 6 April 2012	4.75%

The revaluation period for GMPs is the number of complete tax years between a member's date of leaving and their GMP Pension Age. For members retiring before they reach GMP Pension Age, the revaluation period for GMPs would normally be the number of sixAprils between the two dates.

Furthermore, if a member's actual retirement date is after their GMP Pension Age then statutory late retirement increases will apply to the GMP.

For further information on how we help trustees and sponsors achieve their GMP objectives,please see our range of services for GMP projects.

Defined contribution schemes

Statutory revaluation does not apply to defined contribution arrangements. Instead, any investment returns earned by a member's money purchase fund after they have left the scheme must be used to provide additional benefits for the member. Administration expenses can be deducted but these must not be greater than the expenses that would have applied if the member had remained in service.

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FAQs

Barnett Waddingham - Revaluation for Early Leavers? ›

Revaluation. Deferred pension rights accrued since 1 January 1986 must be revalued in line with prices. This is capped at 5% for service to 5 April 2009 and at 2.5% for service after this.

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What is the revaluation rate for deferred pensions? ›

Revaluation. Deferred pension rights accrued since 1 January 1986 must be revalued in line with prices. This is capped at 5% for service to 5 April 2009 and at 2.5% for service after this.

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How is GMP revalued? ›

Revaluation

Once a member has left the pension scheme(deferment), the GMP must be increased each year until the individual takes those benefits. The increase due in deferment is called 'revaluation'.

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What is revaluation pension? ›

This is about keeping up with inflation. If you're a deferred member of a defined benefit pension scheme – like a final salary scheme – your pension will increase in value to make sure you're still in line with inflation.

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What age do you step up at GMP? ›

Where it applies, an “anti-franking minimum pension” underpins the member's scheme pension. Broadly, this can result in pensions in payment being “stepped up” when a member reaches their GMP age (60 for women; 65 for men), or at retirement when a member remains in active pensionable service after their GMP age.

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What is the rate of revaluation? ›

Revaluation rates show the change in a currency, investment, or portfolio's value at any given point in time. To assess a trader's profit or loss, they use the closing rate from the day before, today's revaluation rate, as a baseline to compare today's closing rate.

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What is the valuation rate for deferred annuities? ›

Deferred Annuities: 2024 Valuation rates for single premium and flexible premium product types are now final, with rates between 3.50-5.25% (representing increases ranging from 25-75 bp versus 2023 rates).

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What is the benefit of revaluation? ›

The purpose of creating a revaluation account is to record adjustments to the value of a company's assets and liabilities. This is typically done when the company revalues its assets and liabilities to reflect its fair market or book value.

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What happens in revaluation? ›

Revaluation is a change in a price of a good or product, or especially of a currency, in which case it is specifically an official rise of the value of the currency in relation to a foreign currency in a fixed exchange rate system. In contrast, a devaluation is an official reduction in the value of the currency.

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What is the purpose of revaluation account? ›

A Revaluation Account is outlined to determine net profit or loss on revaluation of assets and liabilities and including those items that are unrecorded into books. Revaluation account is prepared at the time of admission of a new partner or in case of death or retirement of a partner.

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What is my GMP age? ›

GMP pension age is age 60 for women and 65 for men. Graduated retirement benefit is an earnings-related state pension that you might have earned if you were employed between 1961 and 1974.

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What is a step up schedule? ›

A Step Up Parenting plan allows a younger child to slowly become familiar with the non primary parent and increases time with that parent as they get more accustomed to being in their care.

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What is a step-up program? ›

STEP-UP is an educational and vocational training program that provides formerly incarcerated students and students who are currently under court directed supervision with financial. Administrative, and educational support.

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What is the transfer value of a deferred pension? ›

Calculating the transfer value of a deferred pension

The figure will be based on how much you've put in and how well the underlying investments are performing. When you request a transfer, your provider will give you a 'statement of entitlement' with a current value – which can fluctuate.

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Does a deferred local government pension increase in value? ›

Your deferred benefits increase every year in line with the cost of living whilst they are deferred. This is known as the pension increase and is shown on your annual deferred pension statement. Your pension will continue to receive cost of living increases every year once it is paid to you.

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What is the average pension fund return rate? ›

Pension funds and annuity income returns growth

Average annual pension fund returns, and average annual annuity income change since the introduction of pension freedoms
Calendar year	% pension fund growth	% annual annuity income change
2021	9.5%	3.9%
2020	4.9%	-6.3%
2019	14.4%	-8.5%

5 more rows

Jan 18, 2022

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What is the assumed rate of return for pension plans? ›

Actuaries also calculate the rate of return they expect the pension plan to earn on its investments. This is known as the assumed rate of return. Year to year, investment returns may fluctuate significantly.