Guaranteed Minimum Pension (GMP) - what are the risks?

WobblyDog

I'm 44 but I've decided to start planning how much I need to put in to my current DC pension to allow me to retire at 55.

I asked a company that I worked for between 1990 and 2000 for an estimate of how much my deferred DB pension with them will pay at 65. To my surprise, they said that most of it (£3100 per year in 2000 money) is a GMP, which increases by 6.5% per year between 2000 and 2034 (when I'm 65). Sounds like an amazingly good deal.

I see some risks:
- Inflation could rise close to or above 6.5% for an extended period, but this seems unlikely.
- If I wanted to draw the DB pension before 65 (unlikely), I understand the scheme might not allow it because of the GMP.
- What happens if the pension scheme folds and the PPF takes over? Will they honour the 6.5% until I retire?
- Who is paying for this generous 6.5%? Does it all come out of the scheme, or does the taxpayer pay for part of it?
- Could the government reduce the 6.5% rate?

What are the pro's and con's of GMP pensions?
Is there anything I can do to mitigate the risks between now and 2034?

xylophone

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

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

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/PPF_GMP_FAQs.pdf might be worth a look.

RichandJ

I haven't checked xylophone's links but if you left in 2000 OP & the GMP revalues by Fixed rate, it's 6.25%, not 6.5.