From an expected effective date of January 2009, employers and trustees will be able to agree to operate a reduced revaluation cap in respect of deferred pensions, regardless of any restrictions in the scheme's amendment power.
At present, deferred pensions must be re-valued by the rate of inflation up to a cap of 5%. The Pensions Bill will reduce the 5% cap to 2.5% in respect of future accruals only. Hence, a cap of 5% per annum will continue to be applied to accrued benefits for service between 1985 and the effective date of the Pensions Bill. Also, separate provisions will continue to apply to GMPs.
Over the coming months, employers and trustees may wish to consider whether to adopt the new reduced cap of 2.5% as a cost-saving measure