Following feedback from employers regarding the best ‘three in ten’ indexation definition within the final salary scheme, we wanted to provide you with information which may be helpful to you on how, on occasions, a prolonged pay freeze could affect some members.

Those who have service in the final salary scheme have their pension benefits calculated against the higher of the average of their final year’s salary, or the average of their best three consecutive years (indexed) in the last ten years’ service (the ‘average salary’ calculation).

Where the best ’three in ten’ average salary method is used, indexation is applied when there’s a change in the full-time salary rate (for part-time teachers, a change to the full-time equivalent salary) which then triggers indexation irrespective of whether that change is a pay increase or decrease.

We’re aware that in the event of a pay freeze, the average of the best three years in the last ten calculation may be impacted because indexation will not be applied for the relevant year(s). This may affect members who have service in the final salary scheme and/or have an ongoing final salary link, have a pay freeze in the last ten years of their pensionable service and will rely on the average salary calculation rather than their current salary (in the last 365 days) at leaving service.

It’s the employer’s decision on whether to increase or decrease a member’s salary to trigger indexation.