From IDS Pensions Bulletin 208, September 2007

Average pensions-in-payment have risen by four per cent

The eleventh IDS Pensions Service survey of the average pension paid by occupational pension schemes shows that the latest mean annual payment made by 236 schemes was £5,251, compared to £5,051 paid by the same schemes in the previous scheme year. This is a rise of four per cent and is matched by a rise in expenditure on pensions-in-payment of 4.1 per cent over the same period. The average number of pensioners rose by just 0.58 per cent between the end dates for the two succeeding scheme years.

Main results

The sources of the information for this survey are the annual reports and accounts published by the trustees or managers of 236 occupational pension schemes. These cover, in almost all cases, accounting periods ending on 31 December 2005, 31 March 2006 or 5 April 2006. The schemes covered in this survey almost entirely pay benefits based on the defined benefit model. With few exceptions defined contributions schemes do not have pensioner members. Rather, the pension entitlements of active members and deferred pensioners in a defined contribution arrangement are normally secured by the trustee or the scheme member purchasing a lifetime annuity from an insurance company.

Rising and falling pensioner numbers

Overall the number of pensioners in receipt of a pension from the 236 occupational pension schemes in our survey rose by 15,490 during the period, equating to an overall increase of 0.58 per cent. This disguises the reality that, while the number of pensioners rose in many schemes, the number fell in a substantial minority.

A total of 173 schemes each saw an increase in the number of their pensioners over their last scheme year and taken together the 173 schemes paid pensions to 35,005 more pensioners than they had done at the end of the previous scheme year. A total of 60 schemes recorded a falling pensioner roll compared to the previous scheme year – they collectively paid pensions to 19,509 fewer pensioners than they had at the end of the previous scheme year. But in three schemes the number of pensioners remained unchanged at the end of the two scheme years concerned.

Year-on-year expenditure increases

The total expenditure on pensions-in-payment paid by the 236 schemes increased by 4.1 per cent, with the median scheme experiencing a 5.8 per cent year-on-year increase in pension expenditure. The principal factors that affect annual changes in expenditure on pensions-in-payment include the following:

• the rates of pension increases granted under the scheme rules and/or the trustees’ or employer’s use of discretionary powers

• the pensionable earnings and length of pensionable service of those who became pensioners during the year compared to the pensionable earnings of those pensioners who died during the same period

• the proportion of the pension that was payable to a pensioner who dies during retirement that may subsequently become payable to a spouse, civil partner or other financial dependant (including a zero proportion in the case of those pensioners who have died leaving no survivors)

• the increasing longevity of pensioners which tends to increase the numbers on the pensioner payroll.

What’s in IDS Pensions Bulletin 208