GMP - Can I opt out?

Michael_Walker

I'm afraid I haven't given my pension arrangements the attention they deserve in the past, but now I am approaching the age where I need to do so! Firstly - apologies if this question has been asked before - I did search, but couldn't find quite what I was looking for.

My situation is that I have a Section 32 Buy-out policy with the Pru. It is worth a little under 200,000 and I obtained it in March 1989. The Pru tell me that it counts as a Defined Benefits package and that the only money I might have to play with is that amount (if any) which is left over once they have worked out what's needed to pay my GMP. However, I don't really want a GMP, and would prefer to have all funds available as an income-draw-down. I've come across bits and pieces of info on the web and elsewhere which give the impression that it might be possible to 'opt-out' of the GMP, but have found nothing definitive. The Pru also say that once my GMP is in place (i.e that I have started to collect it), then it is a fixed amount that will not alter over time, whereas I had thought there was an inflation-proofing element to such pensions?

Any help or advice would be appreciated.

Maelwys

Michael_Walker wrote: »

The Pru also say that once my GMP is in place (i.e that I have started to collect it), then it is a fixed amount that will not alter over time, whereas I had thought there was an inflation-proofing element to such pensions?

Any help or advice would be appreciated.

From here:

Once a GMP pension starts being paid, then remember it will directly or indirectly provide some inflation protection. PLEASE NOTE: INSURANCE COMPANIES DO NOT ALWAYS MAKE THIS CLEAR ;but an income made up of GMP will either have some inflation protection provided by the scheme and/or the Government, and will depend on whether you have pre 88 GMP or post 88 GMP (and you could have a mixture of the two).

I'm not exactly sure of the ins-and-outs of it, but no doubt someone else will be along shortly. In the meantime I found a few old MSE threads on the topic such as here and here and here and here ...

greenglide

If you reach State Pension after 5th April 2016 then you will be caught by the new State Pension rules. As part of this there will be no indexation of the GMP by the state as part of the State Pension as there is now.

Michael_Walker

Thanks. I should have said - I reach pension age in October of this year (2015)

dunstonh

However, I don't really want a GMP, and would prefer to have all funds available as an income-draw-down.

Have you done a cost comparison?

I've come across bits and pieces of info on the web and elsewhere which give the impression that it might be possible to 'opt-out' of the GMP

You cant opt out but you can transfer it and give up the GMP (and associated benefits). It will need an IFA to agree it.

The Pru also say that once my GMP is in place (i.e that I have started to collect it), then it is a fixed amount that will not alter over time, whereas I had thought there was an inflation-proofing element to such pensions?

Depends on the years of the GMP (Post/Pre 88). The indexation can either be via the pension or via the state pension. If it is not Pru paying it but the state pension, then you lose the indexation on that state pension if you transfer out. (simplified wording there to help understand).

xylophone

https://forums.moneysavingexpert.com/discussion/5196792

Post 7 might be of interest.

Michael_Walker

Thanks, everyone, for your help and comments. In reply to Dunstonh, I've tried to do a comparison, but it seems to depend on so many unknowns - such as, how long I live for - that it's difficult to be sure. I left my employer in 1988, and handed over control of the fund to the Pru in 1989. The Pru have quoted a GMP figure of around 7,500.00 per annum, and say that will not increase, whereas I want/need about 12,000.00 per annum. I figured that a drawdown scheme would/could offer me that sort of amount, without eating too much or too quickly into the capital sum. The only thing I can state with any certainty is that I am way away from my comfort zone with this stuff and don't consider myself qualified to come to a decision on my own - hence this posting.

xylophone

How old are you? When do you reach state pension age?
The GMP age for a male is 65.

Do you have other pensions in place?

When do you plan to give up paid employment?

Michael_Walker

Hi -I'm a male, and I reach pension age in October this year. I do have other pensions, but they are defined contributions, rather than S32. I am self-employed. I am/was planning on retiring at 65 - hope that helps.

xylophone

If you reach state pension age in October, then your GMP age and state pension age align.

It would seem that all your GMP relates to pre 1988 service.

Your policy would have had two elements, GMP and excess over GMP.

The GMP is revalued in deferment -see http://www.lgps.org.uk/lge/core/page.do?pageId=101769

The Pru must pay you at least your revalued GMP at GMP age which in your case is state pension age.

As you have indicated, they will look at investment returns on your policy and work out how much is required to pay you your GMP for as long as you live.

It is not impossible that your "excess over GMP" would be used to frank or partially frank the revalued GMP.

If not, then there will be benefits additional to GMP available from the policy - I am surprised that the Pru is unable to supply an up to date quotation when you are within weeks of GMP age.

If all the GMP is pre 1988, the Pru has no obligation to increase it in payment.

When the system was first set up, the plan was that the State would pay increases on GMP with the state pension - the GMP (COD) would start at more or less exactly the same amount as a notional ASP, - subsequently the COD figure would remain the same while the ASP figure increased by price inflation - the difference between the two would be your GMP increase.

However, there were subsequent changes (after 1988) which involved the employer paying up to 3% on post 88 GMP.

When a pension became deferred, the GMP still had to be revalued - the pension Trustees had a choice how they would do this - when fixed rate was chosen, this has often led to COD being greatly in excess of GMP so that for those with only pre 88 GMP, any increase is likely to be out of the question for a number of years.

Have you yet claimed your state pension?

xylophone

If you wish to transfer out, you would require advice from an IFA with the necessary permissions/qualifications.

The FAQ here http://www.yourpensionservice.org.uk/local_government/?siteid=5921&pageid=46100&e=e provide an explanation in regard to the above.

https://www.unbiased.co.uk/