STP means loss of GMP inflation proofing

greenglide

I am currently in receipt of an LGPS pension and am a contributing member of a FS scheme. As is usual both schemes are contracted out. My SPA is May 2016 which means I am just caught out by STP.

The amount of AP I have is such that my Foundation Amount will be greater than the STP amount (the £144 at todays prices) so there is no gain / no loss from STP.

Part of the "simplification" appears to be that under STP the inflation proofing of the GMP by the state ends for new recipients of SP. At present for service before 1988 all inflation proofing of the GMP is by paying GMP INCS with the SP and since 1989 the inflation proofing has been the first 3% by the pension scheme and the remainder by GMP INCS with the SP. The GMP part of the FS pension can be very significant and the loss of all inflation proofing for pre 88 GMP is horrendous!

I found this article in the Independent from January which does support my concerns. http://www.independent.co.uk/money/pensions/losers-who-never-knewin-the-switch-to-singletierpensions-9052425.html

Presumably the pension schemes "may" choose to carry the burden themselves if they so wish (and LGPS may do this) but my current scheme does very limited inflation proofing anyway -

• Your Guaranteed Minimum Pension (GMP) relating to service prior to 6 April 1988 will be
increased in line with inflation. These increases will be paid by the State and added to your
basic State pension.
• Your GMP relating to service from 6 April 1988 will be increased with inflation. Increases up to
3% each year will be paid by the Plan. Any increases above 3% will be paid by the State from
State Pension Age and will be added to your basic State pension.
• Your Plan pension in excess of your GMP will increase at a minimum of 3% per annum for that
part accrued prior to 6 April 1997. The portion accrued between 6 April 1997 and 5 April 2006
will increase in line with the lower of the rise in the Retail Prices Index (RPI) and 5% per annum.
The portion accrued from 6 April 2006 will increase in line with the lower of the RPI and 2.5% per
annum.

A scheme that limits inflation rises to a maximum of 2.5% on the excess amount above the GMP isn't very generous anyway and having the inflation proofing of the GMP limited to 3% (all my GMP in the current scheme is post 88) is the last straw!

Is anyone else aware of this? Is HMG / DWP likely to do anything?

Class 3a contributions would be a nice sweetener but that is only for people who have already reached SPA or will before 6/4/2016.

I always knew there was something really nasty waiting from STP.

xylophone

I am currently in receipt of an LGPS pension

Would the rules under which you drew your pension not continue to apply?

Have you contacted the LGPS to enquire?

And it may be that the Public Service Schemes will have to take over the GMP liability? https://forums.moneysavingexpert.com/discussion/4509161

greenglide

xylophone wrote: »

Would the rules under which you drew your pension not continue to apply?

Rules of the pension scheme or HMG rules?

The pension scheme does not have a liability, at present, to provide any inflation proofing of the GMP for pre 88 GMP and only has to pay increases for post 88 GMP exceeding 3%.

xylophone wrote: »

And it may be that the Public Service Schemes will have to take over the GMP liability? https://forums.moneysavingexpert.com/discussion/4509161

I believe that they are "looking at it" but this was from a pensions minister who wasn't aware that the GMP was inflation proofed, in whole or in part (pre or post 88) anyway!

The Department for Work and Pensions does not pay increases on guaranteed minimum pensions (GMPs). GMPs are occupational pension scheme benefits which were accrued between 1978 and 1997. Pension schemes are liable for any statutory indexation of GMPs, and this liability will not change as a result of the single tier reforms. The Department for Work and Pensions pays state pension benefits and their indexation, including additional state pension (SERPS and S2P) and basic state pension.

Possibly open to interpretation?

http://www.theyworkforyou.com/wrans/?id=2014-01-06c.181793.h

xylophone

I think he was probably trying to say that the scheme must pay the Guaranteed Minimum Pension and that the statutory increases that must be paid by the Govt on the GMP form part of AP and are not GMP. (?)

If you are already receiving a pension,it seems to me that in one way or another, you must get the promised index linking on the GMP?

In this connection, you will notice that women (and men) whose state pension age is after their GMP age are being paid the GMP increases by LGPS. http://www.lgps.org.uk/lge/core/page.do?pageId=101544

greenglide

xylophone wrote: »

In this connection, you will notice that women (and men) whose state pension age is after their GMP age are being paid the GMP increases by LGPS. http://www.lgps.org.uk/lge/core/page.do?pageId=101544

The linked item states that indexation of the GMP is 100% by the state (pre 88) and first 3% by the scheme and remainder by the state.

The scheme will continue to fulfill there part (and may do more, we shall see) it is the government that is about to renege on the deal.

I presume that the schemes will have to change their documents to cover what they will do after 6.4/2016.

If you are already receiving a pension,it seems to me that in one way or another, you must get the promised index linking on the GMP?

I am in receipt of the LGPS pension but have not yet attained SPA. GMP comes is after SPA when the inflation proofing of the GMP comes in

xylophone

The linked item states that indexation of the GMP is 100% by the state (pre 88) and first 3% by the scheme and remainder by the state.

The point that I am making is that strictly according to the GMP rules, the LGPS could have told women who drew their LGPS pension at 60 but whose SPA was later that they would just have to wait for index linking on the pre 88 GMP until they drew their State Pension?

However, this did not happen - neither did it happen in the Civil Service see here http://www.civilservice.gov.uk/wp-content/uploads/2012/04/CapitaNewsletter2012.pdf

"New arrangements will apply to members whose GMP age (60 for women, 65 for men) is different from their State pension age e.g. females born after 5 April 1950. In these instances, the scheme will temporarily increase the GMP element which was previously
paid by the State until State pension age. From State pension age, the pension will be split as set out above."

It may well be that after single tier, in Public Service Schemes at least,the Schemes will continue to index link the pre 88 GMP and the post 88 GMP up to 3% and the Government will regard increases on the single tier state pension as satisfying any increase over 3%?

Or it might be that the Public Service Schemes would be required to convert GMP to Scheme Pension and index the whole of the pension as they do for those who draw their Scheme Pension before State Pension Age?

Have you written to the Administrators of your Schemes to ask about policy after the implementation of single tier?

xylophone

I have seen these articles today
http://www.thisismoney.co.uk/money/pensions/article-2634215/Why-millions-WONT-155-new-state-pension-theyre-expecting.html

and http://www.thisismoney.co.uk/money/comment/article-2634182/JAMES-CONEY-Reducing-burden-state-slap-face.html

It is truly astonishing that the DWP

"claimed it had never actually paid these inflation increases and the belief stems from ‘an over-simplification’."

and rather alarming to read

"For years, the Government has funded these rises, but it now says this was not a promise, but a misunderstanding.
This is despite the fact that numerous official statements we have seen contradict this.

We’ve now been told the Department for Work and Pensions is amending this history — and removing these documents from the Parliamentary library."

That seems a novel way of breaking a pension promise: just pretend it never happened."

I trust that all pensioners will be keeping copies of such documents as
http://www.civilservice.gov.uk/wp-content/uploads/2013/08/pensioners_newsletter_2013.pdf

"As the Civil Service scheme is contracted out of the State Earnings Related Pension Scheme (SERPS), you have a GMP if you had service between 6 April 1978 and 5 April 1997. This means the pension we pay you must equal or exceed your GMP.

When you claim your State pension, we work PI out differently. This is because the Government pays the increase on the GMP part of your pension with your State pension.
The GMP consists of two elements:-

• Pre 1988 - for service up to 5 April 1988, the Government will normally pay the increase on your GMP with your State pension. This part does not attract increases from the Civil Service scheme, but the increase is included in your State pension.
• Post 1988 - for service after 5 April 1988, the scheme normally pays PI up to 3% and the increase above 3% is included in your State pension.

This means that the overall increase in your pension will be the same as if the full increase is
paid with your Civil Service pension. We pay the GMP as part of your Civil Service pension and
not as a separate benefit. Your pay advice shows your annual rate of pension.

New arrangements will apply to members whose GMP age (60 for women, 65 for men) is
different from their State pension age – for example, women born after 5 April 1950. In these
cases, the scheme will temporarily increase the GMP element which the State previously paid
until State pension age. From State pension age, the pension will be split as set out above."

greenglide

Well, well, well - that comes as no surprise!

However the government "expects" public sector schemes to inflation proof the GMP themselves and some schemes already do this by inflation proof the GMP anyway meaning that members get the money twice.

Since from 6/4/2006 there will be no GMP anyway could the government not state that the GMP for anyone retiring after 6/4/2014 the GMP is zero which would get them out of the hole - my scheme refers to the "excess" over the GMP which is what they inflation proof. From 2006 they only increment up to 2.5% anyway which isnt great. As it happens my service with GMP is in LGPS anyway so no great problem.

I did ask my current scheme what they intended to do about it and got a response which avoided the issue:-

[FONT=&quot]For people attaining SPA after 5/4/2016, the State will no longer inflation proof GMP as the "old" State pension mechanism will simply fall away. However, the new State pension will receive increases in payment at least in line with the average growth in national earnings (with a Government hope to maintain the current triple lock of the higher of earnings, CPI inflation and 2.5%).[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]In addition, if the accrued State pension rights as at April 2016 under the "old arrangements" is greater than the full new state pension at April 2016 then the excess will be increased both prior to SPA and post SPA in line with the CPI.[/FONT]

Cyberman60

I took early retirement in 2009 and all of my GMP is between 1982 and 1995 on a deferred pension. I get between 3% minimum RPI and maximum 5% RPI annually on all GMP etc . One year I had the max 5% with all the rest 3%. Admittedly this will change once I hit 66 which is my SPA but I still have 7 years to go.

xylophone

I took early retirement in 2009 and all of my GMP is between 1982 and 1995 on a deferred pension. I get between 3% minimum RPI and maximum 5% RPI annually on all GMP etc . One year I had the max 5% with all the rest 3%. Admittedly this will change once I hit 66 which is my SPA but I still have 7 years to go.

You will lose inflation linking on that part of your pension that relates to pre 88 GMP and anything over 3% on the post 87 GMP unless your scheme takes it over.

With regard to the Midland GMP pension that you will receive when you are 65, it is all pre 88 GMP so that again, unless the scheme will take over inflation linking, (unlikely), the amount of pension you receive from the scheme will stay the same and you will not receive any inflation linking from the state.

That said, if the Midland (HSBC) scheme revalues GMP in deferment using fixed rate, it is likely that it would have been years before you received any inflation linking even under the current dispensation because of the size of your COD ( no double entendre intended....):rotfl:

Cyberman60

Hi Xylophone, I must admit the non-inflation proofing is news to me but with also the UK State pension, my SIPP, my admittedly small German State pension as a person with no dependents I'll be ok. I do think though that there is an impending uproar over this and governments cannot afford to upset pensioners. I have a feeling that all is not done and dusted just yet !!

BTW... what is COD ... a fish, cash on delivery ? ;0)