GMP - How to calculate entitlement ?

stevendt

GMP - What does it mean ?

I have a number of pension entitlements and I am trying to understand what the GMP element will mean when I get to statutory retirement age.
All of these company schemes were contracted out of the State Second Pension or SERPS.

I was employed in one company between 14 May 1984 and 26 October 1989 and left at age 29. When I left, I was advised of a pension in excess of the GMP along with a GMP figure, lets them A and B.

Similarly, I was employed in another company between 1 November 1989 and 30 November 1995, and left at age 35. When I left, I was also advised of a pension in excess of the GMP along with a GMP figure, lets call them C and D.

Since then, I have been employed with another company to this day (though probably not for much longer).

I am trying to understand what the GMP entitlement will mean when I reach normal retirement age.

Leaving aside my current employers scheme, how can I predict what the final entitlement will be from my previous schemes ?

I think that the pensions in excess of GMP are easy enough to calculate, each year, the companies advise of a % increment, so the final due would be the A and C figures escalated by the appropriate rates each year (correct ?).

Similarly, I believe that there are published factors applied to the GMP each year, so I could probably calculate a GMP figure (B + D) that was advised by each of the employers schemes each year ?

So, then I'd end up with escalated values for A and C (employer pension) and B and D (GMP).

What I don't understand is what the GMP figures actually mean to me ?
Are they added to the employer scheme totals ?
Will I get both, or only one of B and D ?
It may be that I just calculate a single GMP figure based on my annual salary each year and add this to A and C ?
How do the GMP figures relate to the state pension ?

I'd appreciate any help in understanding this question, along with any pointers to GMP rules that I can understand

Regards
Dave

jh2009

When you left each scheme you will be given a deferred pension. The total value includes the gmp and non gmp.

So using your letter codes in your post you have

Pension one - A + B = total pension

Pension two - C + D = total pension

Each is independent of the other pension as you have different service periods, so GMP amount D is jsut for that 2nd period of service in the 2nd scheme and not a replacement for B in your first period.

Up to retirement, the pension will be revalued. The GMP will be revalued by either a fixed amount or an amount linked to earnings. Your schemes will tell you this if you ask them, or it should be clear on any statements issued.

AS for what your future entitlement will be, if you get the methods of revalution from the scheme you could work this out yourself. Or you could ask them to do this, though this is harder the longer you are from retirement.

What is GMP?

This link explains it a bit more, plus there are other posts on here about what is gmp if you search.

http://www.pensionsadvisoryservice.org.uk/pension_rights/contracting_out/

This post would be quite helpful in terms of understanding GMP to.

http://forums.moneysavingexpert.com/showthread.html?t=1439747&highlight=what+gmp

Id still though check with your pension provider the rules about pension revaluation before you attempt any calcs yourself.

How does it affect your state pension?

Your basic state pension is unaffected. (based on how many qualifying years you paid National Insurance)

What will change though is your state 2nd pension (formerly known as SERPS) which will reduce as some of this is being paid through your company scheme as while contracted out you paid less national insurance.

MrChips

GMP stands for Guaranteed Minimum Pension, and is basically a replacement that your pension scheme was obliged to provide in lieu of the SERPS which you gave up from being contracted out up until April 1997. As you say, your total scheme pension will include some GMP, and some "pension in excess of GMP".

By law, GMP must be treated separately to the excess - it gets different increases (in deferment and in payment) and has more restrictions about when it can be paid from. GMP is payable from "GMP age" - age 60 for females and age 65 for males.

In deferment, there are three ways your scheme can choose to revalue it:

1) at a fixed rate (8.5% pa if you left before April 1988, 7.5% pa if you left after this but before April 1993, 7% pa if you left after this but before April 1997, 6.25% pa if you left after this but before April 2002, 4.5% pa if you left after this but before April 2007, and 4.0% pa if you left after this)
2) in line with national average earnings (called Section 148 orders)
3) at "limited rate" which is Section 148 orders limited to 5% pa (the State would provide increases in the event of national average earnings exceeding 5% pa). This option isn't available for leavers after April 1997.

Revaluations take place on each 6 April after date of leaving, except the 6 April directly before you reach "GMP age". GMP taken after the GMP age receives late retirement increases of 1/7% per week, plus any missed increases it would have received if it was in payment (the statutory minimum payment increases are zero for pre 88 accrued GMP and RPI up to 3% for post 88 GMP).

You should be able to ask your scheme which rate they apply. If the fixed rate, you'll be able to predict your future GMP with some certainty.

The pension in excess of GMP has (for leavers since 1 January 1991) been required to be increased in line with RPI (up to a maximum of 5% pa - although this maximum has been reduced to 2.5% pa for service after April 2009). If you left the scheme before 1991 (as you did your first one) it isn't obliged to revalue the pre 1 January 1985 accrued pension at all, although it still could depending on the Scheme Rules. You should check this out.

The GMP and excess pensions from both schemes will be completely independent of each other.

This is a bit of a rushed answer, but if you want any clarifications, write back tomorrow.

stevendt

jh2009 & mrchips

thanks a lot for replies, I think that I'm getting it !

Whilst the actual figures will need to be confirmed based on the actual escalation rates etc. used by the previous companies, it looks like I can expect more that I'd thought.

At the date of leaving, the two GMP elements work out at about 40% of each of the company payments. I assume that sounds like it would be in the right "ball park" for someone on a UK avarage salary ?

As you say, I need to confim the revision levels applied by the trustees of each of the schemes, but think (I need to revisit the paperwork that I do have) that the 7% number rings a bell. That rate is significantly more than the annual pension increases applied since 1990 - at least twice as much as the average increases have been. So, as a %, the GMP element has been increasing.

Again, I know that I need to confirm the numbers, but assuming that this is correct, are the revisions that are applied each year "locked in", or does it all get calculated at the end, i.e., when I retire ?

Do you think that I can be reasonably confident that these sums will actually be there come retirement, or are they are risk from future rules changes by either the employers or HMRC ?

regards
Dave

MrChips

GMP revalued at fixed rate certainly does compound up significanly, particularly for pre 2002 leavers. 40% at date of leaving does indeed sound about the right ball park.

In theory, the revisions are applied each year, but as you can't claim GMP until 60/65, it doesn't really matter whether they are or "at the end". One potential disadvantage with GMP is if you decide to retire early, the Trustees will need to satisfy themselves that the reduction applied doesn't impact the level of GMP they are required to pay in future - if so they will decline the early retirement request.

While I would never say never, your GMP should be safe from rule changes. That said, there are proposals out there to allow schemes to turn GMP into scheme pension of "equal value" i.e. not necessarily £ for £.

Your biggest risk will be that the schemes employer goes bust at a time when the scheme is underfunded. Then you will rely on the PPF for your pension.

annek_2

i am hopping mad hope someone can explain this to me i retired due to ill health in 2003 i was in my employment for 22y i have been reciveing my pension from them in november i recived a letter to say when i reached 60y in april i was getting Gmp a lump sum plus an increase in my pension p.a i was over the moon and couldnt wait to get it i didnt recive it in april and then may came and still didnt recieve it i phoned them yesterday and now they are saying i am not getting it as i recived my pension through ill health but when i recived the letter in novemberto ask them what the letter meant they told me i was getting it and i would get it when i was 60y in april i dont understand what is going on can they do this and why send me a letter to say i was getting this and even on the phone say i was getting this now he says he is sending me a letter to explain it in black and white i am so mad is this right what they are doing thank you
Annek

dunstonh

annek, its a little hard to follow your post due to lack of punctuation. However, it looks like the following....

You took a pension early in 2003. You got a letter saying you would get an amount in April but you never received anything. Now you are told you are not entitled to anything as you took your pension back in 2003.

I am going to assume that it what you mean but if it isnt please say so.

i dont understand what is going on can they do this and why send me a letter to say i was getting this

They letter was probably automated and shouldn't have been sent. If that is the case, then you are not entitled to anything if financially you were never entitled to any extra benefits.

The FOS ruled on a case some years back where a pension provider sent statements out year after year saying fund was around £150k. The person retired early, moved away to their retirement home and then asked to commence the pension only to be told it was £15k, not £150k. The FOS ruled that it was unfortunate that the error occurred but there was never any financial entitlement to £150k and the insurer shouldn't pay any more. They told the insurer to pay a couple of hundred pounds as a goodwill gesture. In that case, it was a little similar to yours as it turned out they they took some of the pension many years earlier and the insurer forgot to alter the systems to reflect that.

annek_2

i am sorry for not being clear enough
i already recieve a private pension from my firm i got it thriugh ill health i have been getting it now for about 4y in november last year they sent me a letter telling me that i was going to get GMP and stated the amount
i phoned them up in november and they told me that i was getting this amount on top of my pension that i get pluse a lump sum and said i would get it in april when i reached 60y i never got it so i phoned them up yesterday and now they say i am not getting it as i took early retirement througt ill health why did they send it in the first place and get me to sign a copy of it and send it back i am just so confussed i hope you no what i mean
thank you
Anne