This topic defines the annual increases to be applied to pensions after decrement from active status. As such, Pension Increases differ from Increase & Crediting Rates, which apply before decrement from active status. They also differ from increase rates in that Increase Rate Tables can vary by calendar year only, whereas Pension Increases that refer to the COLA Rate Table library may have age, sex and duration dimensions, as discussed below. (Note: pension increases are referred to as Cost-of-Living Adjustments (COLAs) in other places in ProVal, such as the COLA Rate Table library.)
The Pension Increases topic contains two tabs, one for Active Benefits and one for Inactive Benefits.
The upper section of each tab (Create/Edit pension increase assumptions) displays a list of the unique pension increase assumption sets that have been defined for this set of Valuation Assumptions. The first time you enter the Pension Increases topic, this list will be empty for both tabs; click New to create a new pension increase assumption set. Existing items in this list can be modified either by double-clicking them or by selecting them and clicking Edit. For more information on defining a pension increase assumption set, see Creating Pension Increase Assumptions below. The same list of pension increase sets appears in the upper section of both tabs - pension increase assumption sets defined for Active Benefits are accessible on the Inactive Benefits tab and vice versa.
The lower section of each tab (Select which pension increase assumption applies to each benefit) assigns the appropriate pension increase set (as defined above) to each benefit. On the Active Benefits tab, all Benefit Definitions that exist in the current Project are listed. On the Inactive Benefits tab, each Inactive Benefit (defined under the Inactive Data topic of the Census Specifications) that exists in the current Project is listed. To specify a pension increase assumption set for a benefit (active or inactive), click in the Pension Increase column (to the right of the name of the relevant benefit) and select the applicable set from the drop-down list, which is populated from the pension increase sets defined in the upper section of the tab. For any benefits without an associated pension increase assumption set, “<unspecified>” is shown. Note that all benefits included in a Valuation or Core Projection need to be assigned a valid pension increase assumption set in order for the command to run properly.
On the Active Benefits tab, you may select a Plan Filter, from the dropdown list, to reduce the list of possible choices to those Active Benefits associated with a particular Plan Definition. Please see Filters for details.
Creating Pension Increase Assumptions
To define a unique pension increase assumption set, you must enter a unique Description and complete the remaining parameters. The Pension increases during payment period parameters are used to index benefits after payment has commenced. Select the Constant option to specify a single rate to apply to all years after payments start. If this particular Pension Increase assumption does not have an increase during the payment period, then enter zero as the rate. Enter the increase rate as a number (not as a percentage). Select the Variable option to specify increase rates that can vary according to the contents of a coded database field and/or by the calendar year of payment/deferral. The rates can further be specified either as constants or as tables from the COLA Rate Tables Library that have been entered under the Reference Tables command of the Input menu. Select from the list of all the COLA rate reference tables in the current Project or click the 
button to create a new table. COLA rate tables for payment periods may vary by age, sex and duration (time elapsed) since the commencement of payments.
Note that if rates vary by calendar year, it may be attractive to specify variable “<rates by coded field/calendar year>”, where users can combine the formula for determining the pension increases with their assumptions about how the underlying indices will vary by calendar year. However, if the increase rates are a function of the CPI, RPI and/or Section 148, we recommend setting up the increases as Constant and then using the Add, Maximum and Minimum features (described below) to define the formula for determining the increases. Assumptions about how each index is expected to vary by calendar year can then be specified under the Regulatory Items category of the Valuation Assumptions command’s Increase & Crediting Rates topic. This approach can make user inputs easier to check and maintain from year to year.
Check the Add box to add a multiple of the CPI or RPI index. For example, to add 80% of RPI to the increase rate, check the box, select RPI from the drop-down list that becomes accessible and enter a constant of 0.8 in the text field provided. Additionally, there are optional parameters to apply an overall Maximum or Minimum to the increase rate. If a minimum is applied, select whether to set the minimum to be the RPI or CPI, capped at a constant amount per year. The cap will be applied to each annual value of the selected index. A maximum annual rate, if specified, is applied before any specified minimum.
Similar options exist for the Pension increases during deferral period (the period from the decrement date up to the payment commencement date). However, after selecting a Constant or Variable increase rate and selecting whether to Add an index times a constant and/or apply a Maximum, different options exist for the Minimum increase rate (that is, different options from those available for the payment period). After checking the box to apply a minimum increase rate, select from the drop-down list whether to set the minimum to be the “RPI” or “CPI (RPI pre 9/2009)”, capped at a cumulative amount. The cumulative amount applies on a rolling basis: for example, if the cap is 5.0% cumulative, then a single year’s increase of 6.0% would be reduced to 5.0%. However, two years of increase at 6.0% and 4.0%, respectively, would be applied without further limitation, because the cumulative increase of (1.06 * 1.04) -1 = 10.24% is less than the cumulative cap of (1.05 * 1.05) -1 = 10.25%.
The Parameters buttons, to the right of the list of tables and table options for payment period and deferral period pension increases, appear dimmed unless the option to vary by calendar year and/or according to the contents of a coded database field is selected. Clicking a Parameters button accesses additional parameters to complete. See Additional COLA Parameters for details.
Finally, if increases are not constant, enter the Date on which in-payment increases are applied, for ProVal to interpolate between different increase rates across partial years. For example, if the in-payment pension increases are applied on 6 April of each year and the initial amount at commencement age is 100.00 on 1/1/2020 (assuming a 1/1 valuation date) with assumed increases of 2% in 2020 and 3% in 2021, the 2020 pension payment will be calculated as 100.00 * [1 + (0% * 4/12) + (2% * 8/12)] = 101.3333, because the member will receive four payments before the 6 April increase (1 January, 1 February, 1 March and 1 April) and 8 payments after the increase. The 2021 pension payment will be calculated as 101.3333 * [1 + (2% * 4/12) + (3% * 8/12)] = 104.0356, and so forth.
Both the in-payment and in-deferment pension increases are adjusted automatically if “PPF” applicable law is selected. See Pension Protection Fund Liability (Section 179) for details.