Guaranteed minimum pension questions

catch23

I am due a guaranteed minimum pension when i reach the age of 65 in Feb 2016. This arose from a period of 1981-1986 that i worked for Ferranti Electronics.

The GMP however is immensely complicated and whilst i understand the basics i have a few questions that i am struggling to get answers to.

Because Ferranti went into liquidation many years ago the responsibility for paying my pension was handed over to Prudential and i have a deferred annuity as a result. The pay out at normal retirement age(65) is about £2000 per annum and the surrender value in 2011 was about £26000. What i am not clear about is the following:
- the annuity is not index linked. Is this because it is the government that does a yearly increase through my state pension. Or is it that the deferred annuity that Ferranti negotiated is a 'level' annuity?
- When the new rules come into force in April 2015 does that mean i will be able to cash the pension rather than taking an annuity when i reach 65 (10 months later)? Can you cash a GMP pension component?
- Would it make sense if i go with an annuity to shop around and if so how soon should i do this?

Hope these questions make sense to someone out there. Thanks in advance for any info.

dunstonh

- the annuity is not index linked. Is this because it is the government that does a yearly increase through my state pension. Or is it that the deferred annuity that Ferranti negotiated is a 'level' annuity?

pre 88 GMP sees the indexation handled via the state pension.

- When the new rules come into force in April 2015 does that mean i will be able to cash the pension rather than taking an annuity when i reach 65 (10 months later)? Can you cash a GMP pension component?

Theoretically the rules will be able to be used but it may require a transfer. The GMP lost would remove the indexation on that part of the state pension payment.

- Would it make sense if i go with an annuity to shop around and if so how soon should i do this?

Depends on your health. The figures you have given indicate standard terms would not beat the GMP. It is unlikely another firm would accept the GMP given the size but your health, if poor, could make it possible.

xylophone

pre 88 GMP sees the indexation handled via the state pension.

If your Contracted Out Deduction is greater than your pre 97 Additional State Pension, you won't receive any indexation on this pre 88 GMP via the state pension until the one equals or exceeds the other.
See https://forums.moneysavingexpert.com/discussion/4532605
post 12

catch23

After I left Ferranti I joined the Teachers pension scheme and remained with this until i retired in 2011. I assume that i therefore had no additional state pension but i may be wrong. My state pension forecast when i last saw it was the basic state pension + a small amount (£2 a week or something). So I am completely baffled. I knew it was complicated but it seems to get worse with every extra piece of info !

kidmugsy

catch23 wrote: »

My state pension forecast when i last saw it was the basic state pension + a small amount (£2 a week or something). So I am completely baffled. I knew it was complicated but it seems to get worse with every extra piece of info !

Could the £2 p.w. be "GRB" i.e. Guaranteed Retirement Benefit, an archaic bit of the state retirement pension?

catch23

It's very confusing. I have a state pension estimate from march 2009 that says i will have the basic state pension(at the rate it was then) plus 'Additional State Pension' of £35.00 per annum. That forecast was issued by my employer. Later in Aug 2011 as i retired and took my Teachers pension i got a forecast directly from the Pension Service that said that when i reach 65 i would get a basic state pension plus additional state pension of £0.00 plus Graduated Retirement Benefit of £0.71 per week.

So i have no idea what is going on there!. I After leaving Ferranti i spent the rest of my working life contributing to the Teachers pension scheme so I assumed that any second pension or additional pension(are they the same?) would be incorporated into my Teachers pension. God knows what GRB is!
Re reply from Xylophone
- i think i understand that 'Contracted out Reduction' is the amount I lost in Serps by paying less NI. But i dont understand the term 'pre 97 Additional State Pension' in this context. Is this a component of my Teachers pension? and how does it differ from GMP over my working life. Apologies if I seem particularly inept at this - i seem to have underestimated the complexity.

catch23

Ah - just realised that 0.71p per week is roughly same as £35 per year so looks like they have just renamed additional pension as Graduated Retirement Benefit - in case i was finding it all too straightforward perhaps!

xylophone

'pre 97 Additional State Pension'

See http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/nic/add-state-pension.htm

If you refer to the thread in my previous post and read on from post 21 to 37, you will gain an education.........:)

catch23

If you refer to the thread in my previous post and read on from post 21 to 37, you will gain an education.........:)

Ok thanks - i needed to read on as you say where the index linking is discussed in detail. I dont claim to understand all the details but i now see that there is a distinction between what the pensions service will calculate to be my additional pension deficit and the GMP I am entitled to. Amazing how something can get so convoluted in a relatively short period of time

catch23

I now understand that my actual GMP must not exceed my notional ASP (Contracted out deduction ?) in order for me to get an annual increase in the GMP component of my pensions.

Now, my Ferranti GMP was revalued each year very generously under the fixed revaluation scheme at 8.5%p.a and so i am guessing will be quite a bit higher than the equivalent COD for that period (1981-86). So for this component of my GMP i anticipate no annual increase in payment when i reach 65.

Subsequently, however, my Teachers pension GMP will have used a different revaluation option and the GMP is I think likely to be roughly similar to the COD for that period (1986-2011).

I am concerned now though that i will not get any increment on any of my GMP until my total GMP matches my total COD over my entire working life. Is this the case or are the two periods (1978-1988 and 1988-1997) treated separately?

In other words will i get an annual increase in my post 1988 GMP even though my GMP for the whole of my working life might be higher than the COD for the whole period?

Much appreciate your advice on this and all the info received so far.

xylophone

If you type Guaranteed Minimum Pension Contracted Out Deduction into Google, you will find a link to a PDF Parliamentary briefing note which will be of interest.

As things stand, once you reach GMP age (which in your case is the same as state pension age), neither Ferranti nor TPS are obliged to give inflation linked increases (CPI now, not RPI) on your pre 88 GMP - TPS is obliged to pay a maximum of 3% on post 88 GMP.

It is clear from the briefing note that a Notional ASP is calculated at State Pension Age (equivalent to the SERPS you would have received had you not contracted out) and that your total GMP is subtracted from this as the Contracted Out Deduction.

If this gives a negative figure, then in effect you will receive no inflation linking on pre 88 GMP and nothing above 3% on post 88 GMP until the ASP equals/exceeds the COD?

However I am not an expert and you would need to check with DWP/HMRC.