any other teachers understand this?

frugal90

this is so confusing- what does it mean?


http://www.telegraph.co.uk/finance/personalfinance/pensions/12007716/Ill-be-28000-worse-off-with-the-new-state-pension-and-no-one-told-me.html

greenglide

So it has nothing specifically to do with teachers.

Under the new State Pension starting in April inflation proofing of the GMP which is currently done by the State Pension ends.

This has been known about since the new pension was laid out. It has debated one here several times. It is very much a done deal.

Is it fair? Probably not (it impacts my LGPS pension but not my private sector DB scheme). The government did try at one point to claim that the government did not inflation proof the GMP!

Do a search in this forum for threads with GMP in the title.

hyubh

frugal90 wrote: »

this is so confusing- what does it mean?


http://www.telegraph.co.uk/finance/personalfinance/pensions/12007716/Ill-be-28000-worse-off-with-the-new-state-pension-and-no-one-told-me.html

Check out previous threads about 'GMP' and the new state pension on this board - there have been a few, though without any definite conclusion because the matter is still a bit in the air.

Assuming you're a teacher yourself, if you do not have any service in the TPS prior to April 1997, then the whole question is irrelevant; if you do, and in particular, were a teacher before April 1988, then the issue is who pays the increases in payment on some of your pre-97 pension - the scheme or the state in the form of a bit of extra money paid with your state pension? The question is more pressing for public sector schemes because of the way they revalue GMP before it comes into payment, which leads to the GMP on retirement more accurately reflecting the additional state pension forgone.

The 'word on the street' is that the government are soon to announce a bodge in which public sector schemes will become liable for the full GMP increases for the next couple of years. Whether that is politically sustainable in the long term is perhaps doubtful - 'pensions apartheid!' the headlines might scream. Oh, and it's LGPS fund valuation time next year too, which may help to bring things to a head.

xylophone

You started teaching around 1983?

If so, you will have pre 88 GMP and post 88 GMP (to 1997).

The GMP is roughly equivalent to what you would have earned in SERPS had you not been contracted out.

Originally, the idea was that once you reached state pension age, the government, through the state pension, would be responsible for inflation linking the whole of that part of your pension known as the GMP.

Then there was a change whereby the govt would only increase in full that part of the GMP relating to pre 88 service - the post 88 would be partially indexed by the scheme (up to 3%).

Have a look at the explanation here for LGPS
https://shareweb.kent.gov.uk/Documents/council-and-democracy/pensions/LGPS/guide-effect-state-pension-LGPS.pdf

With the advent of the new state pension, the mechanism for index linking the GMP goes.

This is why the teacher in the article feels aggrieved (and rightly so).

kidmugsy

I wonder whether the article is bogus. Won't that teacher get a larger state pension than before, which could outweigh the inflation-protection business?

hyubh

kidmugsy wrote: »

I wonder whether the article is bogus. Won't that teacher get a larger state pension than before, which could outweigh the inflation-protection business?

The case study reaches SPA next year, so there's no time to build up state pension under the single tier - she'll 'just' get her foundation amount, which given a career of being contracted out will therefore be her entitlement under current rules.

greenglide

But of course any small amount of AP that such a person will have accumulated (virtually everyone has some) will now be inflation proofed by the triple lock rather than just CPI up to the nSP maximum which is a slight benefit.

frugal90

still confused

I get the basic idea of the change -you will have a foundation amount then each year after next April will add an amount on top of that up to the maximum.

How does the lack of inflation proofing kick in and why?

hyubh

frugal90 wrote: »

How does the lack of inflation proofing kick in and why?

From the late 70s to the early 90s a 'contracted out' salary-related scheme (so, almost all final salary ones) had to provide at least a 'Guaranteed Minimum Pension' (GMP) calculated on a set basis to each member. This was to ensure that members did not lose out by being contracted out of the State Earnings-Related Pension Scheme (SERPS), SERPS being the government's substitute arrangement for people who didn't benefit from a good occupational scheme like Teachers.

Up until April 1988 there was no obligation on a contracted out scheme to inflation proof the GMP in payment; instead, this inflation proofing would effectively be paid as additional state pension. From April 1988 this switched to the scheme having to pay increases in payment up to 3%, and if the government's official inflation rate was higher, the remainder still effectively as additional state pension.

As such, someone with membership of a final salary scheme both before and after 1988 would have two GMPs (in effect), a pre-88 one where the scheme doesn't pay any increases in payment and a post-88 one where the scheme pays increases up to 3%. The issue with the new state pension is that the basis by which this 'paying GMP increases with the state pension' works will no longer exist.

Because of this, the government are saying responsibility for full GMP inflation proofing will pass to the scheme, and if the scheme won't take it on, no one. In practice you may be safe, though there's the question of why public sector scheme members should be specially privileged as very few (if any) private sector DB schemes will voluntarily start paying full GMP increases. (That said, I wouldn't see the TPS paying full GMP increases as a 'banker' - nothing's been formally announced either way.)

greenglide

Because of this, the government are saying responsibility for full GMP inflation proofing will pass to the scheme,

They havent said that it is the responsibility of the scheme they have simply removed the method by which the State Pension did the inflation proofing and then confused matters further by trying to state the the government wasnt responsible for inflation proofing the GMP anyway.

There was a statement that the public sector schemes would be "required" to inflation proof this themselves but I dont think anything has actually come of that.

hyubh

greenglide wrote: »

There was a statement that the public sector schemes would be "required" to inflation proof this themselves but I dont think anything has actually come of that.

The 'word on the street' I referred to earlier was something else, though it may still be Chinese whispers.