Revaluation of GMP

Judesman

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?

xylophone

http://dl.dropbox.com/u/452108/20110217094333898.pdf

RichandJ

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.

Judesman

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

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.

SnowMan

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.

Judesman

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

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

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.

SnowMan

Judesman wrote: »

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.

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.