Effect of Negative CPI, PBLCI or MTAWE

Effect of negative CPI or PBLCI growth on pension

If the Consumer Price Index [glossary:(:]CPI[glossary:):] or [glossary:Pensioner and Beneficiary Living Cost Index (:]PBLCI[glossary:):] figure for the reference quarter is less than the figure for the base quarter, the indexation factor calculated under that index is set to equal 1. If the indexation factor under both CPI and PBLCI is equal to 1, there will be no CPI or PBLCI increase to pensions, allowances, thresholds or limits for that period. The amounts will not reduce. The maximum basic rate [glossary:(:]MBR[glossary:):] of service pension may still be increased by Male Total Average Weekly Earnings [glossary:(:]MTAWE[glossary:):] benchmarking even if there is no CPI or PBLCI increase.

Effect of negative growth in MTAWE on pension

The use of MTAWE in the indexation process does not change when there is a reduction in MTAWE. However, a reduction means that the CPI or PBLCI indexed rate will not need to be further topped up to the MTAWE benchmark.

Positive CPI or PBLCI growth after a period of negative growth

Following a period of negative CPI growth, amounts that compare the reference quarter CPI to the previous base quarter will receive a greater benefit than those that compare the reference quarter CPI to the previous highest base quarter. This is because those that compare to the previous base quarter CPI receive the benefit of part of the increase twice – once for each time the CPI increases to a particular point. The distinction does not arise for PBLCI as the base quarter for indexation using PBLCI is only ever the previous highest quarter.

Example of impact of negative CPI growth followed by positive CPI growth

This hypothetical example shows the impact of positive CPI growth after a period of negative CPI growth. To show the impact more clearly, no rounding rules have been applied. The relevant CPI figures are assumed to be 150 in March 2006, 145 in March 2007 and 152 in March 2008.

The rates for 1 July 2007 remain the same because the CPI for the reference quarter (145 – March 2007) was less than for the base quarter (March 2006). In calculating the indexed rates for 1 July 2008, the base quarter for Amount A is the March 2007 quarter CPI of 145, whereas for Amount B, the base quarter is the March 2006 quarter CPI of 150. Thus Amount A receives the benefit twice of the CPI moving from 145 to 150, whereas Amount B only receives this benefit once.