The Social Security Revaluation of Earnings Factors Order 2025
The Social Security Revaluation of Earnings Factors Order 2025, effective April 6, 2025, increases earnings factors for specified tax years (1978-1979 to 2024-2025).
These adjustments apply to calculations of additional pensions in long-term benefits, guaranteed minimum pensions, and other calculations under the Pension Schemes Act 1993.
The order ensures that these factors maintain their value relative to the general level of earnings, fulfilling a legal requirement outlined in the Social Security Administration Act 1992, and aims to protect the value of pension payouts.
Arguments For
Maintaining the value of benefits: The order adjusts earnings factors to reflect changes in the general level of earnings, ensuring that pensions and other benefits retain their purchasing power.
Compliance with existing legislation: The order fulfills the legal requirement under Section 148 of the Social Security Administration Act 1992 to periodically review and adjust earnings factors.
Protection of state pension recipients: The adjustment serves to maintain a fair and equitable level of state pension payments for beneficiaries.
Transparency and predictability: The regularly scheduled reviews and resulting orders provide transparency and predictability for those affected.
Predictable impact on the Pension system: The periodic adjustments to earnings factors allow for better financial forecasting and management of the state pension system.
Arguments Against
Complexity of calculations: The revaluation process and its application across multiple Acts may present complexities in implementation and understanding by individuals and administrators.
Potential for unintended consequences: There may be unforeseen impacts of applying the adjustments retroactively across multiple pension schemes, affecting different categories of beneficiaries unequally.
The cost of the increases and its impact on the Governments budget: The increases may require additional funding, potentially impacting government budgetary allocations and tax plans.
Alternative methods of inflation adjustment: Rather than using earnings factors as the basis for adjustment, other indices may more effectively reflect changes in the cost of living.
Limited impact assessment: The lack of a full impact assessment may limit the understanding of the complete effects of the order's implementation.
- Citation, commencement and extent (1) This Order may be cited as the Social Security Revaluation of Earnings Factors Order 2025 and comes into force on 6th April 2025. (2) This Order extends to England and Wales and Scotland.
This section details the order's official title, effective date (April 6, 2025), and geographic scope – England, Wales, and Scotland.
- Revaluation of earnings factors Earnings factors for the tax years specified in the Schedule to this Order in so far as they are relevant— (a) to the calculation of— (i) the additional pension in the rate of any long-term benefit; or (ii) any guaranteed minimum pension; or (b) to any other calculation required under Part 3 of the Pension Schemes Act 1993 (schemes that were contracted-out etc. and effects on members’ state scheme rights) (including that Part as modified by or under any other enactment), are directed to be increased by the percentage of their amount shown opposite those tax years in that Schedule.
This section mandates an increase in earnings factors for specific past tax years.
These factors are key components in calculating additional pensions within long-term benefits, guaranteed minimum pensions, and other calculations under the 1993 Pension Schemes Act.
The percentage increase for each tax year is detailed in the schedule.
- Rounding of fractional amounts Where any earnings factor relevant to the calculation specified in article 2(a)(i), as increased in accordance with this Order, would not but for this article be expressed as a whole number of pounds, it is to be so expressed by rounding down any fraction of a pound less than one half and rounding up any other fraction of a pound.
This section outlines the rounding rules for any fractional amounts resulting from the earnings factor increases specified in Article 2.
Fractions less than half a pound are rounded down; others are rounded up.
Schedule Percentage increase of earnings factors for specified tax years Article 2 [Table showing tax years and percentage increases]
This schedule provides a table listing each tax year from 1978-1979 to 2024-2025, along with the corresponding percentage increase to be applied to the relevant earnings factor.
Explanatory Note (This note is not part of the Order) This Order is made following a review under section 148 (revaluation of earnings factors) of the Social Security Administration Act 1992 (c. 5). This Order applies to earnings factors relevant to the calculation of additional pension in any long-term benefit or of any guaranteed minimum pension or to any other calculation required under Part 3 of the Pension Schemes Act 1993 (c. 48) (“the 1993 Act”). Article 2 provides that, for those purposes, earnings factors for the tax years specified in the Schedule to this Order are to be increased by the percentage of their amount specified in that Schedule; the effect is that earnings factors for those years are revalued at 2024-2025 earnings levels. Accruals of additional state pension ended with the introduction of new state pension on 6th April 2016. Revaluation of earnings factors is still required for inherited additional state pension in certain circumstances (see sections 48B and 51 of the Social Security Contributions and Benefits Act 1992 (c. 4) (“the Contributions and Benefits Act”)). The percentages specified in this Order for the tax years from and including 2000-2001 are used in the revaluation of old state scheme pension debits and credits (awarded under section 49(1) of the Welfare Reform and Pensions Act 1999 (c. 30)) in accordance with sections 13 and 14 of, and paragraph 2(6) of each of Schedules 8 and 10 to, the Pensions Act 2014 (c. 19). The percentage specified for 2015-2016 is used to increase flat rate accrual amounts of additional state pension in accordance with paragraphs 4(2), 8(4) and 9(4) of Schedule 4B to the Contributions and Benefits Act. Accruals of guaranteed minimum pensions ended on 6th April 1997 by virtue of section 14(8) of the 1993 Act. Revaluation of earnings factors is still required for guaranteed minimum pensions which are not yet in payment. Article 3 of this Order provides for rounding fractional amounts for earnings factors relevant to the calculation of the additional pension in the rate of any long-term benefit. By virtue of section 23(2) of the Contributions and Benefits Act, rounding is not required for the purpose of calculating guaranteed minimum pensions. A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen.
The explanatory note provides context and clarifies the application of the order, explaining the impact on different pension types and calculation methods.
It also notes the lack of a full impact assessment due to the anticipated minimal impact on various sectors.