GMP on early retirement

arsenalboy

I have scoured the net to try and answer my question without success, hopefully more success here!

In my earlier years I was a member of a scheme for 20 years leaving in 1991 as a deferred member. Over the years I have had a couple of forecasts of benefits payable at 65, I am currently 62.

The forecast has always been consistent on the GMP element as this was a matter of fact i.e., indexed up at 7.5% per annum to age 65.

I have just asked for an early retirement quotation which I have received. I need to go back and ask a question but wanted to understand about what I am asking.

They have quoted me a figure and said it will attract an annual increase linked to RPI with minimum 3%. I understand the GMP is not increased by the 7.5% once age 65 has been reached, but do I forfeit the 7.5% increase for the next couple of years because I have elected to take an early pension?

The reason I ask is that a 7.5% increase for the next couple of years is not compatible with an increase "linked to RPI with minimum 3%" .

Many thanks

mania112

GMP will continue to accrue 'behind the scenes' and your total pension at 65 needs to be at least what the GMP.

i.e, retiring early does not affect the GMP.

When the scheme calculates your early retirement, they will ensure the normal annual increases will meet the GMP at 65, OR you'll get a step up in that year to meet GMP.

Normally though, GMP is less than the total pension, so it's an arbitrary safety-net that will never be needed (GMP isn't an extra amount, it's within the total pension - that's the easiest way to understand it, at least).

arsenalboy

mania112 wrote: »

GMP will continue to accrue 'behind the scenes' and your total pension at 65 needs to be at least what the GMP.

i.e, retiring early does not affect the GMP.

When the scheme calculates your early retirement, they will ensure the normal annual increases will meet the GMP at 65, OR you'll get a step up in that year to meet GMP.

Normally though, GMP is less than the total pension, so it's an arbitrary safety-net that will never be needed (GMP isn't an extra amount, it's within the total pension - that's the easiest way to understand it, at least).

The GMP element of the deferred quotations for 65 was less than 50% of the total and exceeded the minimum GMP.
Does that mean I will lose the 2 years worth of 7.5% by taking the early pension compared if I wait until I am 65.
I understand when you say that GMP isn't an extra amount, but the quotes have always shown it separately, therefore if I don't get the extra 7.5%'s it feels if I am being diddled?

mania112

In many ways it doesn't matter (but to answer your question, no, it doesn't change):

Let's say before considering early retirement you had quotes which said 'at retirement you'll get £10,000pa, of which GMP is £5,000'.

Now the quote's will say 'at early retirement you'll get £8,000pa - at 65 GMP will form £5,000 of the total'.

RichandJ

arsenalboy wrote: »

The GMP element of the deferred quotations for 65 was less than 50% of the total and exceeded the minimum GMP.
Does that mean I will lose the 2 years worth of 7.5% by taking the early pension compared if I wait until I am 65.
I understand when you say that GMP isn't an extra amount, but the quotes have always shown it separately, therefore if I don't get the extra 7.5%'s it feels if I am being diddled?

Not really. As mania says, your GMP is part of your pension, not in addition to it so as long as the scheme pays at least revalued GMP at GPA (GMP Payment Age - still 65 M, 60 F) then the GMP element will have received the statutory revaluation rate, 7.5% per tax year between leaving & GPA in your case.

Don't worry about it seeming complicated, lots of pension administrators in my experience also sometimes have difficulty with the concept, but you aren't being done. And it keeps me in work, putting right what aforesaid numpties have c0cked up.

xylophone

You are male? You will reach State Pension Age before 6/4/16?


Is the figure you have been given for GMP your GMP at leaving revalued to GMP age or your GMP at leaving?

Has the pre 88 GMP/post 88 GMP split been provided?

http://www.barnett-waddingham.co.uk/news/2012/07/revaluation-for-early-leavers/
http://www.barnett-waddingham.co.uk/news/2012/07/what-is-a-gmp/

arsenalboy

xylophone wrote: »

You are male? You will reach State Pension Age before 6/4/16?


Is the figure you have been given for GMP your GMP at leaving revalued to GMP age or your GMP at leaving?

Has the pre 88 GMP/post 88 GMP split been provided?

http://www.barnett-waddingham.co.uk/news/2012/07/revaluation-for-early-leavers/
http://www.barnett-waddingham.co.uk/news/2012/07/what-is-a-gmp/

I have kept all paperwork from the scheme over the last 20 years.

In 2007 I asked for a detailed calculation of my projected pension at 65. The calculations provided split the GMP at 1991, it splits them pre April 88 and post April 88 and confirms that they will be indexed up for 23 years at 7.5% per annum and gives an exact calculation of the GMP value at age 65 i.e., retirement age.
Furthermore they advise that the post 88 element is the responsibility of the scheme and will be increased annually from age 65 at RPI with a cap of 3%.
Quite apart from that they gave a value of my deferred pension at 1991 and confirmed this would be increased by 5% per annum or RPI if less to age 65.
With each request for updates they have always quoted the GMP at 65 which has remained constant together with a separate figure for the balance indexed by RPI/5% to date of quote.

A reply above states that GMP is part of the pension and not in addition, I understand that. But the quotes have always shown these separately with a total being the sum of the two.

I am thoroughly confused now!!

xylophone

I am assuming that you are male and that you will draw your state pension at 65 (which is also GMP age) before 6/4/16?

You intend to take an actuarially reduced scheme pension now, up to three years before NRD?

You will be advised of your gross annual pension and until GMP age, your scheme will increase the whole of the pension (which will include your GMP) according to Scheme rules (from what you have said in your previous post 5% or RPI if less).

At GMP age (state pension age in your case?), your Scheme will advise you that your pension is made up of £x pre 88 GMP, £x post 88 GMP (apparently you have already been given this figure?) and the excess.

The Scheme has no obligation to increase the pre 88 GMP but is obliged to pay increases on the post 88 GMP up to 3% or CPI if less - it would normally be up to the Govt to pay inflation linked increases (CPI) on your pre 88 GMP and anything over 3% on post 88 GMP with your state pension.

But where a pensioner's total GMP (the state pension statement will refer to this as COD) is greater than the pre 97 Additional State Pension, there will be no increase paid on the pre 88 GMP or over 3% on the post 88 GMP until the one catches up with the other.
https://forums.moneysavingexpert.com/discussion/4736856 see post 46.

arsenalboy

Thanks for that reply xylophone, I think I understand.

Just to confirm that I am male and am 65 in Jan 2016 and looking to take deferred pension next month.

I understand from what I read that GMP is indexed each April but not in the April before the 65th birthday. So in my case I am only due one more 7.5% GMP increase in April 2014?.

However, if I understand you correctly I will forgo that one 7.5% increase but instead receive two increases on it to age 65 at 5% or RPI if less. So if there were two RPI increases of circa 3.75% I would be no worse off.?

At age 65 onwards I do understand the indexation rules relating to pre and post 88 GMP elements.

xylophone

My understanding is as follows, but do check with your Scheme Administrator.

I think that the term "revaluation" is more accurate than "increase" - you already know what your GMP revalued to 65 will be because your Scheme Administrators already know it? (Fixed Rate Revaluation)

This figure will be confirmed to the Scheme when you reach GMP/SPA.

At SPA you will receive a statement from the DWP concerning your SP entitlement, including your COD (see previous post) and also a statement from your Scheme Administrators which will show your pension at that time as pre 88 GMP, post 88 GMP and the excess.

It would seem therefore that provided your Scheme will be paying you a pension at least as great as your revalued GMP at 65, the only relevance to you of your GMP is the way your Scheme Pension and State Pension will increase after you are 65?

If the total scheme pension you are being paid at 65 is not equal to or greater than your revalued GMP at age 65, then your Scheme would have to increase it.

xylophone

And all the above having been said, you might be interested to read through this thread (but wind the cold towel round your brow first).:D
https://forums.moneysavingexpert.com/discussion/4736856