GMP Query - Help!

DairyQueen

This is my very first post and I am hoping the pensions gurus are able to help me.

Firstly, a big thank you to all the specialists who contribute to this forum. I have gained more information from this site than any other source in months of pension research. I now understand what 'GMP' means and its relevance to a contracted-out pension scheme. Thanks to this site I also know about GMP gender inequality and successive governments' failure to address it.

I have deferred benefits in a company DB scheme which relate entirely to employment between 1991 and 1996. The scheme was contracted-out and I therefore have a 'GMP' element. I was given (and still have) a 'statement of deferred benefits' when I left the company 20 years ago (produced by the pension administrator and signed by one of the then trustees). I relied on this statement as being... er.... gospel. I have since learned that I have been very naive. I spoke to the Government Pension Advisory Service and they informed me that this statement (even if signed in blood) isn't binding. They also told me that the scheme rules could be amended without the scheme advising me.

I will put my hand up and admit that, until recently, I failed to examine the small print on this statement as I didn't understand it. My first (and only, so far) valuation was produced in 2013 and I have since requested another. It's only now (thanks to this site) that I understand what the 1996 statement means. Well, I thought I did, but I'm missing answers to some key questions. I called the administrator two weeks ago. The scheme was closed to new entrants shortly after I left the company in 1996. I don't have a copy of the current scheme rules (I have requested those). The administrator's contact person for this scheme wasn't able to answer my questions. He has referred my queries to some higher entity and I am due a response in writing 'in two or three weeks'.

In the meantime I have discovered more information, and this has prompted more questions. I wish to avoid calling the administrator again (and then having to wait another two/three weeks for a written response) until I know exactly what questions I should ask. Over a week ago I emailed the person who produced the valuation in 2013 but no response received to date. I am hoping that the experts here will be able to provide guidance (at least in general) in order that I may circumvent the lengthy timescale of dealing with the administrator (make call/pose query/query referred/query answered by letter/letter poses another query....repeat ad infinitum).

So, here goes....

The statement of deferred benefits gives the following info:
Normal Retirement Date: 65
GMP: 475.80
Excess Pension: 2095.53
Quote: "GMP will be increased by 7% for each complete tax year from date of leaving until State Pension Age"
Quote: "The balance of your pension will be increased at Normal Retirement Date in line with the RPI up to a maximum of 5% for each complete year since the date of leaving".

I was able to establish (from the administrators) that the indexation on the excess pension changed from the RPI to the CPI in 2012 (it was simply referred to as a 'cost of living' increase on the 2013 valuation). The statement of deferred benefits makes no mention of any difference between GMP age for men and women. Nor does it mention anything about the GMP becoming payable at GMP age rather than state pension age. At the time the statement was produced the legislation to equalise pension ages had already been enacted. My state pension age in 1996 was 65 (I am female, born in 1959). This is a financial services company - it sold personal pensions. There was much discussion at the time around the 1995 equalisation of state pension age. I have known since 1995 that my state pension age would be equalised with that of a man of the same age. It has remained equal (it is now 66).

The first communication I ever received from the scheme to hint at a GMP gender difference was the 2013 valuation. Again, numptie me didn't register it as significant. I thought is was a typo:
Quote: "The GMP included in your pension is increased each complete tax year from the date you left 'the Fund' until your State Pension Date (age 60) at the rate of 7%."

Spot the problem with that statement. At no time since before I left the scheme (or anytime after) has my 'State Pension Age/Date' been 60. By 2013 it was 66. I did some online research and found out (by chance from this site) about the gender inequality of GMP. I should have found out more before I called the administrator. Even so, he confirmed that my GMP becomes payable at age 60 but the excess isn't payable until age 65. I asked how the GMP was indexed after age 60. He didn't know. I asked whether I would face early retirement penalties if I took the excess before age 65. He didn't know. I asked him what would happen about GMP if I was male. He confirmed that GMP doesn't become payable for men until age 65 BUT GMP indexation for men continues at 7% until they are 65.

So both genders are being discriminated against in different ways. I couldn't believe it! Since then I have undertaken a lot more research to see how pension schemes generally manage these inequalities. From what I have discovered, generally they don't! The government never got around to resolving the issue and, thanks to the new state pension (and the end of contracting-out), it's likely that they will never do so.

Until I receive the scheme rules I have no idea how this scheme deals with GMP indexation for women after age 60, nor what early retirement penalties are applied on the excess, but, considering their lack of clarity on the issue so far, and the methods adopted by similar schemes, I suspect that I will have to decide between taking the pension at age 65 (and foregoing five years of GMP revaluation and GMP payments) or taking the pension at age 60 and accepting early retirement penalties on the excess.

I should add that it has never been my intention to retire before age 65. My preference would be to take the pension then. My pension plans assumed that the deferred benefits statement meant what it said - i.e. that the GMP would become payable at age 65 with 7% indexation up to that age. In other words, I would like to be treated exactly the same as a man of my age.

I appreciate that I am fortunate to have been a member of a DB scheme. I accept that this situation is the result of the government's failure to act but I also think that scheme administrators had a duty to communicate (on both the statement of deferred benefits and on the 2013 valuation) that GMP age is NOT state pension age/date. In both communications to me they mislead by explicitly referring to 'state pension age/date' instead of GMP age. These two ages have been defined differently for many women since 1995, and also for many men since I think about 2010.

Assuming that the GMP is revalued by either 0% or CPI between ages 60 and 65, and assuming that the early retirement penalty on the excess pension will be around 5% for each year it is taken before 65, could the experts here please advise whether I would be best served by:

a) Leaving the pension until age 65
b) Taking the pension at age 60 (when the GMP becomes payable) and investing the proceeds until age 65 (the max £2880 net in a SIPP and the balance in the best low risk savings vehicle available at that time - say 2/3% annual return).

Also, what specific questions should I ask the scheme administrator, if any?

I no longer earn any income from paid employment. I am married. I qualify for the full rate of new state pension at age 66 and I have a total of about £50k in a SIPP and DC schemes.

Any guidance/advice would be very much appreciated and gratefully received.

xylophone

GMP age has not changed - it is as it has always been, 60 for women and 65 for men.

https://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

https://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/



If the scheme NRA has always been age 65 for men and women, then presumably females would have been entitled to late retirement increases on GMP of 1/7% per week?

If the scheme NRA is 65 then taking your pension before that age would mean taking it with an actuarial reduction?

Have you obtained a new state pension statement? https://www.gov.uk/check-state-pension

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/512799/your-state-pension-statement-explained-dwp042.pdf

DairyQueen

"GMP age has not changed - it is as it has always been, 60 for women and 65 for men."

Thank you for replying xylophone. Yes, I know this now. Unfortunately, this has never been made clear to be my the scheme. Quite the opposite. I only discovered this two weeks ago.

"If the scheme NRA has always been age 65 for men and women, then presumably females would have been entitled to late retirement increases on GMP of 1/7% per week?"

You would think so but probably not in this case. The one piece of explicit info about this I have (so far) received from the scheme is that a 7% indexation applies to females up to age 60. There is no indication (yet) re: what the indexation arrangement is for women post-60.

"If the scheme NRA is 65 then taking your pension before that age would mean taking it with an actuarial reduction?"
On the excess pension...yes.

"Have you obtained a new state pension statement?"
Yes. Very recently. I have 30 years N.I. My pension has been reduced because of COPE but I intend to make voluntary contributions for the next 5 years to ensure that I qualify for the £155(ish) maximum.

Thank you again.

zagfles

As I understand it the deferred GMP for women is increased between age 60 and normal pension age by 1/7% a week (so a bit over 7% a year) plus the increases that would have been paid if it was in payment - which for post-1988 service is CPI inflation capped at 3%.

xylophone

https://www.barnett-waddingham.co.uk/comment-insight/blog/2012/07/24/revaluation-for-early-leavers/


"Furthermore, if a members actual retirement date is after their GMP Pension Age then statutory late retirement increases will apply to the GMP."

DairyQueen

Thank you both vey much for this information.

Although relieved to know the GMP indexation will continue for me until age 65, I am uneasy knowing that my male colleagues are not being treated equally on this GMP issue.

I am also less than impressed with a government which has abandoned its commitment to paying its share of indexation on the GMP element of pensions when they are in payment. I understand that those who were contracted-out before 1989 will now receive zero indexation on the GMP part of their pension post-retirement unless the scheme has taken over this responsibility from the government. I believe that some public sector schemes are doing so but the same is not true of the private sector. Given the problems of funding DB schemes that's understandable.

I am very fortunate to be on the thick end of the contracted-out wedge thanks to a fluke of timing and circumstances which I didn't plan, and over which I had no control, but others are on the thin edge for the same reasons. Pensions seem to be one of life's lotteries and, with the benefit of hindsight, I should have ignored state pension provision (and initiatives) in my retirement planning.

DairyQueen

I thought it may be helpful for others contracted-out in the 80s/90s if I posted information I have discovered with respect to revaluation/indexation of deferred benefits on my private sector DB scheme. I appreciate that scheme rules differ but I hope my experience prompts others to contact their scheme administrator to determine exactly how they have been affected by changes in rules, and government legislation, over the decades. I didn't check for 20 years. Complacency is your worst enemy! I am hoping that the pension gurus on this forum will comment on any inaccuracies/ambiguities I mention. My intention isn't to mislead but to prompt people into researching their own situation.

GMP legislation differs depending on when you were contracted-out and when you left the scheme. The government also allowed schemes to choose from different revaluation options. These factors make a big difference to how any deferred GMP is indexed (increased) until you retire, and it also affects how your GMP is increased (if at all) once your pension is in payment.

The variables of gender, service period and leaving date are all key to the GMP pension you will receive. For many people their scheme's retirement date, GMP payment due date, and state pension age, will all be different and those differences may affect how GMP is increased until you retire.

GMP could be revalued each year by anything from 'cost of living' up to 8.5% (yep, that's one heck of a big difference!). Because I left service in 1996, all my service was post 1988, and my scheme opted for the 'fixed rate' method of revaluation, I am the lucky beneficiary of 7% fixed annual indexation on my GMP! A complete fluke and unlikely to be an experience shared by many people. My guess is the vast majority will see their GMP increase at a much lower rate.

Because I am female (gender inequality still lurks in the legacy of some pension legislation), from age 60, my GMP revaluation will change to 1/7% per WEEK plus CPI until whatever date I take my pension (exactly as the gurus on here advised). If I defer taking my pension past scheme retirement age, or state pension age - respectively 65 and 66 in my case - then that algorithm continues to be applied until I do. The law differs for men. Blatant discrimination (and apologies to the guys - I didn't make the rules and I don't like them).

There is no 'early retirement' reduction applied to the GMP part of my pension if the pension is taken between age 60 and scheme retirement age (65). However, a reduction would be applied on the balance of the pension (the 'excess').

The excess of my deferred pension (the non-GMP part) has been increased by the RPI each year (up to a max of 5%) until 2009/2012 (both have been mention so I need to check which applies). Since that date the indexation factor has changed to CPI (a lower figure).

The outcome for me (notwithstanding the solvency of the scheme, future inflation and any more changes in the law) is that the GMP (approx 20% of the original deferred pension) is likely be be worth approx. 50%+ of the total pension when I retire age 65/66.

This is a good example of how individual circumstances can impact pension outcomes. I doubt many people were the beneficiaries of happenstance to the same extent as me.

The sting in the tail.....

Everyone with GMP (whether in payment, or not) should check how they have been affected by the government's withdrawal of funding for indexation increases on GMP in payment . This change happened in April with the ending of contracting-out. Until then annual cost of living increases on GMP in payment to retirees were met wholly by the government for GMP accrued pre-1989, and for any increase above 3% on GMP accrued between 1989 and 1997. The government is no longer paying these increases. I have seen mention that some public sector schemes may take over this responsibility but I think private sector DB schemes are very unlikely to follow suit. They have enough issues with funding without incurring discretionary increases in costs in order to maintain pensioner benefits which were/are the responsibility of government.

The other thing which surprised me. Inflationary increases on my 'excess' pension (once in payment) are deemed 'discretionary'. My scheme is currently NOT paying any inflationary increase to current pensioners and, given the state of play on funding these schemes, I assume that they have no intention of reintroducing them anytime soon.

I have also discovered that:
a) my GMP must be put into payment at the same time as the 'excess' part of my pension
b) reductions applied to the 'excess' pension if I retire between age 60, but before scheme retirement age (65), are scary - from 8% for one year up to 34.1% for five years.

Based on this information I thing it's possible that a pensioner member of my scheme, whose benefits were accrued wholly before 1989, will no longer receive any inflation linked increases on any part of their company pension. Likewise, I think deferred members will only receive inflationary increases (once the pension is in payment) on the GMP part of their pension, and only for service accrued between 1989 and 1997, and then only up to a max of 3%.

Those of us with DB scheme benefits are still lucky but the benefits may have reduced over time, and may reduce further. It's possible that the scheme will not inform you of any changes in rules and/or legislation which could have a big impact on the pension you were expecting. For example, receiving a flat-rate company pension - with the amount fixed at retirement - is now a possibility that needs to be included in retirement plans.

Apologies for waffling.

xylophone

The high fixed rate index linking did not always work in a pensioner's favour under the old state pension scheme.

Consider a deferred pensioner who arrived at state pension age under the old state pension scheme with a very high pre 88 GMP. In some cases, the GMP could represent a large proportion of his pension.

The GMP would more or less equal his Contracted Out Deduction.

This COD would almost certainly be higher than the Additional State Pension he would have earned had he not been contracted out.

As the figure for pre 97 ASP ( a "notional" figure calculated for DWP) would have been negative, the DWP would not have paid any increases on that part of his state pension and would not pay any until the figures came into balance, which could have been after many years, if ever.

His scheme would not have paid any increases either.

DairyQueen

I don't know much about the interaction between the old SP and contracting-out xylophone but it would seem, from your example, that it is as much of a lottery as anything else pension-related.

I thought that GMP payment amounts were supposed to be added back on to your state pension each year for purposes of indexation under the old system? Well, until this year of course.

Am I right in thinking that (for some people) under both old and new SP any benefit gained from contracting-out pre 97 (due to, for example, GMP revaluation rules) is lost over time because of (lack of) inflation increases once the GMP and state pensions are in payment?

Is it also possible that, say, someone who contracted out pre 88, had a COD deduction less than (or equal to) their ASP, and who retired under the old system, could be worse off since the intro of nSP because the government has stopped funding inflation increases on GMP in payment whilst continuing to index-link ASP?

If so, I wonder how many DB scheme pensioners, who retired under the old SP rules, are aware that their pensions may have been affected by the introduction of nSP? I kept reading that those who retired under the old system 'wouldn't be affected' by nSP. Hmmmmm

xylophone

Have a look at this thread https://forums.moneysavingexpert.com/discussion/4532605

A mistake was made by DWP/HMRC in respect of howy 22's ( from post 17 onwards) state pension which was payable under old rules.

You will be able to see the difference that Fixed Rate revaluation of GMP (rather than Full Rate) makes to pre 97 ASP indexation.

DairyQueen

Thank you for the link. It would seem that, over the life of a state pension, contracting-out isn't the benefit which is so often claimed. Some people have been especially disadvantaged - especially those who were contracted-out pre 1989 and who retired before April this year (or who will retire within a couple of years of introduction of nSP). Only those (like me) who have time to add to our 'starting amount' will be able to compensate to some extent for the loss of indexation on GMP (or caused by COD) by increasing our nSP entitlement before SPA.

t would be interested to know what 'old SP' statements will show when pensioners are advised by DWP of SP increases in future. As the government has reneged on its indexation commitment to those who contracted out pre 1997 (and that means zero indexation for pre-1989 GMP from 2016) I assume that the '88' COD deduction will remain static as at Apr 2016?

I have now discovered that schemes have until 2018 to reconcile their COPE amounts with DWP records for nSP. This suggests that any COPE which remains unreconciled (and possibly WRONG) after that date can't be corrected and the individual may have to accept an incorrect nSP for the rest of their lives.

There is nothing in the nSP statement which suggests that the COPE may change, or that individuals may wish to check their COPE records with DWP, and their pension schemes, before the 2018 cut-off date.

DWP have given me info on my COPE record. Two schemes are claiming that I was contracted-out with both of them at the same time in 1989 (!) although I have no protected benefits for that year. Another scheme has reported that I began contracting out with them in 2001 and that I was still contracted out with their scheme in 2016 (!), An interesting claim as I haven't been employed since 2011 and I was either self-employed, or working overseas, from 2002 until 2007!

As an aside, and having read a little about the 'WASPI' campaign (*looks furtively over shoulder) I am wondering whether this may be a good time for me (just about a '1950s' female) to mention on a WASPI thread that my pension age was actually reduced in 2011 from 66.5 years to 66!

Perhaps not.