About Your Benefits

Pensions in Payment

  • Pension Increases

The pensions of all beneficiaries are increased on 1 January each year in line with any increase in the Retail Price Index (RPI) for the twelve months ended in the previous November (or a proportional part of this increase for pensions in payment for less than the full twelve months). All beneficiaries mean former contributors, widows, widowers, civil partners, adult dependants and children.

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For former contributors who exercised the Levelling Option, Levelling Option additions are not increased and from State Pension Age, RPI increases are added to pension before taking off the Levelling Option deduction. For former contributors with an entitlement to a Guaranteed Minimum Pension (GMP) from State Pension Age, increases on the GMP element of pension will be paid separately from RPI increases on the rest of the pension. Similar provisions apply to the pensions of widows and widowers with a GMP entitlement from the date the HMRC notifies the Scheme that a GMP is payable. This is explained in more detail later.

Bonus Augmentations

Pensions may be increased if there are future valuation surpluses which enable the Trustees to improve benefits by awarding Bonus Augmentations. Bonus Augmentations will be kept separate from the rest of your pension entitlement.

Bonus Augmentations have been awarded with effect from 1 April 1996, 1998, 2001 and 2007. The 2009 actuarial valuation of the Scheme found deficits in the Guaranteed Fund and the Bonus Augmentation Fund. This resulted in the ‘standstill’ provisions in the Rules being brought into effect. This meant that the level bonuses awarded before 2010 were converted into reducing bonuses. The ‘core’ Guaranteed Benefits were unaffected and continued to increase each year in line with the increase in the Retail Price Index (RPI). The conversion of the bonuses into reducing bonuses led to a Bonus Augmentation Residue which the trustees were able to use to mitigate the effect of the bonuses reducing by awarding replacement bonuses for each year in 2011, 2012, and 2013.

There are now two types of Bonus Augmentation:

Reducing bonuses – these are bonuses awarded before 2010. Following the 2009 valuation these bonuses reduce each year when the Guaranteed benefits increase by RPI. The reduction each year is equivalent to the increase in the Guaranteed benefits.

Level Bonuses – these are the replacement bonuses awarded since 2010.

Pensions Increase Example

The best way of seeing how these arrangements work is by way of an example. The example looks at the position of someone who, in January 2010 had a pension of £12,000 made up of a guaranteed pension of £10,000 and bonus pensions totalling £2,000 a year. It assumes an RPI increase of 3% each year. Please note the example is for illustrative purposes only – the proportion of the bonus to guaranteed pension is not accurate.

As at January 2011

Date

Guaranteed pension

Reducing bonus

Replacement bonus

Total bonus

Total Pension

1 April 2010

£10,000

£2,000

-

£2,000

£12,000

1 January 2011

£10,300*

£1,700

£300

£2,000

£12,300

*RPI increase is £10,000 x £3% = £300

The process is repeated in January 2012. The assumed RPI increase of 3% on the guaranteed pension of £10,300 is £309, so the guaranteed pension goes up to £10,609. The reducing bonus is reduced by £309 to £1,391, but we top up the replacement bonus by £309 to replace that reduction. So the total amount of bonus remains at £2,000 and the total pension has increased to £12,609.

As at January 2012

Date

Guaranteed pension

Reducing bonus

Replacement bonus 2011

Replacement bonus 2012

Total bonus

Total Pension

1 January 2012

£10,609*

£1,391

£300

£309

£2,000

£12,609

*RPI increase is £10,300 x £3% = £309

The process is repeated until reducing bonuses reach zero.

Levelling Option

If you took the levelling option when your pension started the levelling option addition stops when you reach State pension age and your pension is reduced from then on by the amount of the levelling option deduction. The operation of the levelling option is described more fully in the levelling option factsheet which can be found on the Publications Page of the website. The levelling option deduction will cease from age 80.

Additional Voluntary Contributions

If you paid Additional Voluntary Contributions, you will have been receiving a pension from an annuity contract from the date your BCSSS pension started. Whether or not this provides for annual increases, and the amount of annual increases, will depend on the arrangements you made at the time the annuity was purchased.

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Guaranteed Minimum Pensions

Members who contributed to the Scheme after April 1978 were contracted out of the State Earnings Related Pension Scheme (SERPS). The contracting out legislation requires the pension paid by the Scheme to be at least as good as the pension that would have been earned in SERPS. This equivalent amount of pension is called the Guaranteed Minimum Pension (GMP).

The GMP is not an additional pension, it forms part of the Scheme pension.

GMPs for former contributors

The Scheme’s liability to pay a pension at least equal to the GMP in respect of a former contributor does not arise until State Pension Age. When a member reaches State Pension Age HMRC notifies the Scheme of the amount of GMP due. For most members, the Scheme pension will be more than the GMP, but if it is not, the pension has to be increased so that it is equal to the GMP. From State Pension Age the special arrangements for RPI increases explained below will apply.

Widows and widowers

The widows and widowers of contributors who were contracted out of SERPS may also have a GMP entitlement. For widows, this will be half of the contributor’s GMP. For widower’s the entitlement will be half of the contributor’s GMP arising from service after April 1988.

HMRC will notify the Scheme of the amount of GMP due to widows and widowers who meet the qualifying conditions for payment. For most beneficiaries, the Scheme pension will be more than the GMP. For these beneficiaries, the only effect of their GMP entitlement will be that increases on the GMP will be paid separately from RPI increases on the rest of their pension. If the GMP is more than the Scheme pension, then the pension has to be increased so that it is equal to the GMP.

Widowers of Scheme members who did not pay family benefit contributions will not be entitled to a Scheme pension. However, they may be entitled to a pension from the Scheme of half their wife’s GMP earned after April 1988.

Application of RPI increases

The GMP part of the pension is increased in accordance with the contracting out legislation. The arrangements are as follows:

  • for GMP arising from contributing service between April 1978 and April 1988 the State will pay CPI linked increases. The first increase is paid from the April following the attainment of State Pension Age with CPI linked increases payable from each subsequent April. The amount of the increase is paid with the basic State pension.
  • for GMP arising from contributing service after April 1988 the BCSSS pays CPI increases up to 3% a year. In any year that CPI has increased by more than 3% the State will make up the increase to the CPI level. These increases are also payable from April each year. The arrangements for payments made by the State are the same as described above.

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