Cost of living
Increases in the cost of living are measured by reference to one of two indices published by the Government.
As a starting point, all pensions are increased in line with the increase in the Consumer Prices Index (CPI) over the twelve months to the previous September. By way of example, the CPI increased by 0.5% over the twelve months to September 2020. Pensions in payment from the Scheme, which were accrued prior to 6 April 1997, were increased by 1.1% with effect from April 2021.
Pensions accrued from 6 April 1997 onwards also benefit from an additional layer of statutory protection in the form of an ‘underpin’. They are required to be increased in line with the increase in the Retail Prices Index (RPI) to the previous September (with a 5% cap), if this provides a greater increase than using the CPI (without a cap). To illustrate, the CPI increased by 0.5% over the twelve months to September 2020 whilst the RPI increased by 1.1%. As a result, pensions earned before 6 April 1997 were increased by 0.5% with effect from April 2021, whereas pensions earned after that date were increased by 1.1% due to the underpin applying.