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  • FIRST POST
    Judesman
    Revaluation of GMP
    • #1
    • 3rd Mar 12, 12:56 PM
    Revaluation of GMP 3rd Mar 12 at 12:56 PM
    I retired early on health grounds in 1992 with a contracted out deduction/GMP of 30.88. At state retirement age last April that GMP, following an annual revalution at 7.5%, amounted to 113.51. My additional state pension amounted to 64 so it is going to be many years before I can receive an increase on my GMP. I was wondering what my GMP would have been at SRA if the original GMP had been revalued using S148 increases in line with National Average Earnings. I can find plenty of tables but I have no idea how to apply any of the figures to my original retiring GMP of 30.88. Can anyone help me please?
Page 1
  • xylophone
    • #2
    • 3rd Mar 12, 1:32 PM
    • #2
    • 3rd Mar 12, 1:32 PM
    http://dl.dropbox.com/u/452108/20110217094333898.pdf
  • RichandJ
    • #3
    • 3rd Mar 12, 2:41 PM
    • #3
    • 3rd Mar 12, 2:41 PM
    Is all/any of your GMP from post 5 April 1988 service ?

    If so, then your scheme, assuming it is an occupational one, is required to increase that element in payment after GMP Payment Age by up to 3% pa.

    Any increase over that or any pre 6 April 88 GMP is 'paid by the state', but as per xylophone's link not until your notional Additional Pension has caught up with the GMP.
    It only takes one tree to make a thousand matches, it only takes one match to burn a thousand trees. As well, the cars are all passing me, bright lights are flashing me.

    Johnny Was. Once.

    Why did he think "systolic" ?
  • Judesman
    • #4
    • 3rd Mar 12, 3:31 PM
    • #4
    • 3rd Mar 12, 3:31 PM
    Thanks Xylophone and Richard J. I understand how GMP works (not many do) and I do have a small post 88 element. But what I would like to know is how I revalue GMP using S148 increases. This is from Pensions Advisory Service web site:-

    Guaranteed Minimum Pension (GMP)

    One of the requirements of contracting out is that the pension built up in the scheme, known as a Guaranteed Minimum Pension (GMP), has to be of a minimum level. When a member leaves a final salary scheme, all or part of the pension earned to that date will be made up of a GMP. The GMP element must be revalued for each complete tax year between the date of leaving the scheme and age 60 for women and age 65 for men.

    There are three methods of revaluing the GMP:
    • Section 148 orders - This involves increasing the GMP in line with the annual rate of increase of National Average Earnings;
    _____________________________

    I can find various statistics on the internet but how do I calculate the revalution using this method please? HMRC has confirmed that my employer could have used this method.
  • RichandJ
    • #5
    • 3rd Mar 12, 3:43 PM
    • #5
    • 3rd Mar 12, 3:43 PM
    Ah, I haven't got the S21/148 tables at home. I'll have a look Monday if no-one else has answered by then.
    It only takes one tree to make a thousand matches, it only takes one match to burn a thousand trees. As well, the cars are all passing me, bright lights are flashing me.

    Johnny Was. Once.

    Why did he think "systolic" ?
  • SnowMan
    • #6
    • 3rd Mar 12, 3:55 PM
    • #6
    • 3rd Mar 12, 3:55 PM
    Here is the S148 (formerly S21) table.

    Your notional SERPS would have increased from leaving (1992) to SPA possibly by 100.8% (see 2nd column which may be right if your SPA was not in the first 5 days of April).

    This compares with the 267.6% increase to your scheme GMP (= (113.51/30.88-1)x100).

    This explains how your additional pension could effectively be -ve (albeit they don't reduce your basic state pension). i.e. if your notional SERPS at leaving was only just more than your GMP at leaving then this could have switched round because of the lower revaluation to the notional SERPS.

    Working backwards 64/2.008 = 31.87.

    So possibly at leaving your GMP was 30.88 and your notional SERPs was 31.87?

    And your additional pension (at SPA) is then 64 - 113.51 = -ve i.e. no additional pension at SPA.

    After SPA the 113.51 either gets annual increases at 0% or lower of 3% and RPI, or a mix depending on how much is pre 88 and post 88 GMP respectively,

    whereas the 64 increases at RPI (I think)

    So some additional state pension might be paid sometime in the future if (64 + increases) is more than (113.51 + lower increases).

    Sorry bit rusty on GMPs so may have got this wrong. Someone more knowledgeable please correct.
    Last edited by SnowMan; 03-03-2012 at 4:33 PM.
    I came, I saw, I melted
  • Judesman
    • #7
    • 3rd Mar 12, 6:05 PM
    • #7
    • 3rd Mar 12, 6:05 PM
    Thank you very much Snowman and Richard J, it's appreciated.

    So my understanding is that my employer had the option to revalue my 1992 GMP using S148 and in that case my GMP at SRA would be 62, more or less in line with notional SERPS at SRA and I would now be entitled to an annual increase on my GMP. Something that at present I can not see happening for about 20 years if I make it!

    I found a very helpful lady at HMRC NIC Office and she explained this to me and apparently my employer would have had the option to revalue GMP using this method. I was amazed to discover, last year that I would not be able to get an increase on the pre 88 GMP that represented 35% of my occupational pension.

    I keep being told that I am an anomaly but unfortunately that does not pay the bills.

    Many thanks for your help.
  • xylophone
    • #8
    • 3rd Mar 12, 7:07 PM
    • #8
    • 3rd Mar 12, 7:07 PM
    The ASP shown on your pension statement approximates to your GMP revalued by S148 orders to SPA as explained on P2 of the link.
    Section 148 Orders are based on the increase in the National Average Earnings Index each year.
    After SPA the "triple link" will apply only to basic state pension - the ASP will only increase by cost of living index (now CPI) - see
    http://www.direct.gov.uk/en/Nl1/Newsroom/Budget/Budget2010/DG_188503
    "State Pension
    From April 2011, there will be a triple guarantee so the basic State Pension will rise by either:
    earnings the average increase in UK wages that year
    prices how much the cost of living increases that year
    2.5 per cent
    The basic State Pension will rise each year by whichever gives the highest amount. Additional elements of the State Pension will continue to rise in line with prices."
  • Judesman
    • #9
    • 3rd Mar 12, 10:25 PM
    • #9
    • 3rd Mar 12, 10:25 PM
    Thank you for that Xylophone. Unfortunately my GMP has been revalued by 7.5% per year and not S148. There is now a difference between ASP and GMP that will not be bridged in my lifetime. Having paid for my occupational pension I do not think that it is right that the Government should find some reason not to pay increases in GMP when I reach SPA. If the state doesn't want to pay the increases then responsibility should be passed back to the employer as with post 88 GMP.

    Thanks for your input.

    Whilst I am on my high horse if CPI is the preferred measure of inflation why are water charges, train fares and student loans increased in line with RPI!!!! But that is another matter.
  • xylophone
    I imagine that the Trustees of your scheme (in common with many others) didn't want to expose it to the open-ended liability that so called "full rate" revaluation represented.

    I don't think we need to cudgel our brains for an answer to why the Government is linking pensions to CPI and repayments on student loans to RPI.
    Last edited by xylophone; 04-03-2012 at 10:53 PM.
  • SnowMan
    Thank you very much Snowman and Richard J, it's appreciated.

    So my understanding is that my employer had the option to revalue my 1992 GMP using S148 and in that case my GMP at SRA would be 62, more or less in line with notional SERPS at SRA and I would now be entitled to an annual increase on my GMP. Something that at present I can not see happening for about 20 years if I make it!

    I found a very helpful lady at HMRC NIC Office and she explained this to me and apparently my employer would have had the option to revalue GMP using this method. I was amazed to discover, last year that I would not be able to get an increase on the pre 88 GMP that represented 35% of my occupational pension.

    I keep being told that I am an anomaly but unfortunately that does not pay the bills.

    Many thanks for your help.
    Originally posted by Judesman
    The anomaly is really related to the fact that you took ill health early retirement. Had you actually left and been granted a deferred pension payable at SPA (say) you might have been very grateful that the scheme used fixed rate revaluation.

    The scheme would have revalued the GMP at 7.5% between leaving and SPA and added it to the revalued excess.

    Clearly that would give a higher scheme pension than had the scheme revalued the GMP at S148 and added it to the same revalued excess.

    (that assumes it is a typical private sector scheme where GMP and excess are separated, which is probably true unless it is an industry affected by privatisation such as British Steel)

    For someone with notional SERPS equal to the GMP at leaving (which is roughly your position) at least from SPA in both cases you would get (initially at least) no additional state pension.

    Hence you would have benefited from the higher scheme pension (than had the scheme used S148 revaluation) while getting roughly the same additional state pension i.e. none (at least initially from SPA).

    So it is the fact you took ill health retirement that creates the quirk.

    Assuming you were 'lucky' enough to get a full unreduced pension on retiring in ill-health (and of course nobody is 'lucky' to be affected by ill-health causing them to retire early) you've probably done reasonable well out of the scheme overall especially if you have no reduction in life expectancy as I hope you do.

    I'm not trying to make any point or express any opinion incidentally by making that observation just trying to explain how things might not be quite as unfair as they seem.
    Last edited by SnowMan; 04-03-2012 at 4:05 PM.
    I came, I saw, I melted
  • Judesman
    Hello Snowman,

    I am just trying to understand what you are saying here. When I retired in 92 I was granted a pension based on years served (29/60 instead of the 40/60 I would have expected to receive). Since then that has been the subject of annual increases based on RPI. That was fine up until SRA last April.

    You refer to the "revalued excess" what is the excess at my retirement in 92? My problem is that I do not know how my employer worked out deferred pensions.

    I believe that my employer should have taken into account the circumstances surrounding my retirement, they would have known that I was not going to receive a deferred pension.

    It just seems unreasoable that having paid into my scheme pension for 29 years, the State now says it will not pay the increases on 35% of my pension that I have paid for.

    By the way what does -ve mean in your earlier post please?

    Many thanks for your input it is appreciated.
  • mrschaucer
    I'm guessing, but "negative" might fit?
  • xylophone
    If you had retired at 60, your pension would have been uprated by your scheme in accordance with its rules.
    Once you reached state pension age the gmp portion of your pension would have been split into pre 88 gmp, post 88 gmp and the excess.

    The excess would have been uprated in accordance with your scheme rules and the GMP in accordance with the pre and post GMP rules.

    Note that the inflation measure used for the additional state pension is now CPI not RPI.

    If you type 'second state pension contracted out deduction' into Google you will find a briefing paper for parliament by Djuna Thurley which you might find of interest - it was 2010 so still refers to RPI - the ASP in payment will now be uprated by CPI.

    If you type in 'no increase on pre-88 gmp' and go down to "scheme" you will find a pensions ombudsman determination that you might find of interest.

    http://www.barnett-waddingham.co.uk/news/2005/12/revaluation-for-early-leavers/ might also be of interest.
    Also see http://forums.moneysavingexpert.com/showthread.php?t=3558371&page=2 post 24
    Last edited by xylophone; 04-03-2012 at 6:14 PM.
  • SnowMan
    Hello Snowman,

    I am just trying to understand what you are saying here. When I retired in 92 I was granted a pension based on years served (29/60 instead of the 40/60 I would have expected to receive). Since then that has been the subject of annual increases based on RPI. That was fine up until SRA last April.

    You refer to the "revalued excess" what is the excess at my retirement in 92? My problem is that I do not know how my employer worked out deferred pensions.

    I believe that my employer should have taken into account the circumstances surrounding my retirement, they would have known that I was not going to receive a deferred pension.

    It just seems unreasoable that having paid into my scheme pension for 29 years, the State now says it will not pay the increases on 35% of my pension that I have paid for.

    By the way what does -ve mean in your earlier post please?

    Many thanks for your input it is appreciated.
    Originally posted by Judesman
    I wouldn't worry too much about the mention of the leaver who doesn't then retire until SPA earlier and revalued excess (the excess before revaluation is just deferred pension at leaving less GMP at leaving) it was just there to illustrate that the scheme revaluing at 7.5% rather than S148 could be beneficial for some other members of the scheme. Should also have said that the scheme couldn't decide on an individual basis what GMP revaluation method it used, so at any point in time it couldn't give s148 revaluation to one leaver and 7.5% to another leaver on the same date.


    So concentrating on early retirements before SPA. The rules of private sector schemes have typically over the years

    a) increased the whole of an early retirement pension in payment at the scheme increase in payment rate up to SPA and

    b) increased only the excess over GMP after SPA at the scheme increase in payment rate, with the pre 88 GMP element getting no increase and the post 88 GMP getting 3% or RPI increases.

    The reason the rules typically do this are so as to broadly integrate with the state scheme so that increases on the GMP aren't generally paid twice. It is completely logical and works very well in most cases.

    However it doesn't work perfectly in this aim in every case. And your situation is a case where it doesn't work. However it would be impossible for the scheme to adjust for this through its rules without introducing extraordinary levels of complexity and without having to collect complicated contribution information even for periods before and after someone was employed by the company.

    So you really can't blame the company scheme unjust as it feels. The scheme rules state how the pension increases in payment and the scheme are just following those rules.

    And you can't really say the state scheme is unjust here because if it wanted to be unjust someone could have included a provision in the state scheme that your basic state pension would be reduced by the negative amount of additional state pension.


    The fact that you got your full accrued pension on early retirement 29/60th was arguable a generous feature of the scheme rules. Some other schemes would have reduced the early retirement pension because it was being paid early even on ill health retirement. Yours had no reduction.


    Sorry -ve did mean negative
    Last edited by SnowMan; 04-03-2012 at 6:17 PM.
    I came, I saw, I melted
  • Judesman

    And you can't really say the state scheme is unjust here because if it wanted to be unjust someone could have included a provision in the state scheme that your basic state pension would be reduced by the negative amount of additional state pension.

    Originally posted by SnowMan
    Now that would have been unjust because I paid a full NIC and earned a basic pension.

    However thank you for your detailed explanation of all this and your comment about not applying a S148 revaluation in an individual case is interesting because HMRC has told me that this is possible. I am going to approach my previous employer and see what happens but I do now have a real understanding of what is going on here so once again many thanks.

    Xylophone, thank you I will have a look at those links.

    Thanks to all.
  • Judesman
    Xylophone, I am not sure whether you will pick this up but this is a quote from the link that you gave me:

    "For the 5 years between leaving and taking the pension, the pre-1988 GMP remains as is, but the post-1988 GMP is increased by 6.25% p.a.(thus 2000 becomes 2708 (and total GMP included in final pension is 5708)."

    This is the link: http://forums.moneysavingexpert.com/showthread.php?t=3558371&page=2

    I understood that on early retirement the entire GMP was re-valued by the appropriate percentage, in my case 7.5%. This quote suggests that only the post 1988 GMP is re-valued. Am I missing something here please?
  • xylophone
    I think that the poster in that posting (21) on the link (I was referring you to post 24) must be getting confused by the fact that when the state pension is taken, pre 88 GMP increases are not paid by the scheme but by the state?
  • Judesman
    Thank you Xylophone. Yes I am sorry I looked at the wrong post.

    I am sorry to rake this up again but why are increases on pre 1988 GMP cancelled out by the increases in post 1988 GMP. In my case I will not receive an increase in pre 88 GMP and post 88 GMP will be increased by 3% by my occupational pension. Why would this affect my pre 88 GMP please?

    Thanks for your help.
  • xylophone
    I have edited this post as I think that I have confused you.
    You need to put in your own figures in the calculation shown in
    http://dl.dropbox.com/u/452108/20110217094333898.pdf
    which I think is the clearest explanation I have come across.
    Last edited by xylophone; 10-03-2012 at 11:33 PM.
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