Confused with GMP

Howards

Hi Folks
Am just reviewing pension position with possibility of transferring 2 DB schemes whilst retaining one as a strong base - trying to assess actual income at 60 and 65 from the one I intend to retain to ascertain viability

1.NRD 60 and will take at this time
2.GMP starts at 65 was my understanding although when researching came across GMP bridge so could some/all be paid at 60??
3.At 65 do I add my total GMP which is revalued at 7% to deferred pension which has been paid since 60??

Would appreciate help/thoughts

xylophone

Have you obtained a new state pension statement?

Are all three of the DB pensions deferred or is one of them your current scheme?

You were given statements when leaving the schemes of pre 88 GMP/post 88 GMP and excess?

Have you obtained CETV for each of the schemes from which you propose to transfer out?

If the value of the benefits is in excess of £30,000 then you will require the advice of a pension transfer specialist who will be au fait with GMP.

See 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/

As to bridging pensions, this depends on individual schemes and is more connected with the provision of a higher pension to SPA than with GMP.

As to how a DB Scheme NRD of 60 ties in with male GMP age of 65, the example here (post 165)

https://forums.moneysavingexpert.com/discussion/4736856




may be of interest - however, there are complexities and you really need to discuss your particular case with the Administrator of your Scheme(s).


https://www.nao.org.uk/wp-content/uploads/2016/03/The-impact-of-state-pension-reforms-on-people-with-Guaranteed-Minimum-Pension.pdf

may be relevant to your situation.

PensionTech

What usually happens is something like this:

1. Your pension at date of leaving consists of GMP and non-GMP ("excess").
2. The GMP and excess revalue at different rates: the excess usually in line with inflation, the GMP usually in line with earnings or a fixed rate. For you it seems like this will be 7%.
3. Your pension at 60 will be calculated as the sum of your excess revalued to age 60 plus your GMP revalued to age 60, but when it is put into payment it will all be called "excess" because GMP is not payable until age 65 (for males).
4. Between 60 and 65 your pension in payment will probably be increased in line with inflation, although this depends on the rules of your scheme and the period during which you built up the pension. You appear to have left before 1997 so it is possible that your pension will not be increased at all between 60 and 65.
5. At age 65, your pension administrators will calculate the GMP revalued to age 65. They will "split out" the GMP - i.e. where all of your pension was previously paid as excess, some of that will now be paid as GMP. This will not necessarily result in an increase in your total pension. There is a calculation that the administrators have to carry out to see if splitting out the GMP will result in the excess being less than you were entitled to at retirement. If it is, they will "step up" your excess to ensure that you get no less than the statutory minimum. This is called anti-franking and can be quite complex; you don't need to know all the details, but the main point to take away is that your pension will not necessarily increase at age 65, and even if it does, it may not be by the 7% per annum used to revalue the GMP.

Not all schemes work in exactly this way but it's likely to be something similar to this.

Howards

Thanks very helpful !!

Points 1 &2 - are clear enough

Point 3 - seems to nail it as you are confirming that GMP is effectively paid at 60 not 65
therefore pension at 60 is significantly more than expected!! ??
eg Excess pens at 60 c £12,000 + GMP(Post + Pre 88) £7,800 + £19800
Sorry to labour this point just really surprised as at no time has this been raised when requesting transfer figures etc and surely has a material effect on planning?

Point 4 - Correct left in 94 but think receive cpi increase on excess which may impact on calculation you refer to in point 5

Point 5 - seems clear, might not increase at 65 but have been paid revaluation up to 60 between 60 & 65

This helps me to review decision again so your help is appreciated

PensionTech

Point 3 - seems to nail it as you are confirming that GMP is effectively paid at 60 not 65
therefore pension at 60 is significantly more than expected!! ??
eg Excess pens at 60 c £12,000 + GMP(Post + Pre 88) £7,800 + £19800
Sorry to labour this point just really surprised as at no time has this been raised when requesting transfer figures etc and surely has a material effect on planning?

It depends on the scheme, but yes, your pension at 60 will often be the total of your revalued excess and GMP even though it is all paid as excess. Whether or not this is higher than what you had expected depends on what you were basing your expectations on! Again, I have to strongly caveat this: different schemes employ different calculation methods and even though some variation of this practice has been used in all of the schemes I've worked on, yours may vary. This kind of information is not provided as standard within a transfer value quotation. The best thing you can do is ask the scheme for a quotation of the annual pension you would receive at age 60. If age 60 is still a long way away, make sure you know whether they've projected future revaluation or not as you may have to make some allowance for inflation to put it in today's money terms.

Howards

Thank you and understand the caveats

Have requested figures at same time as transfer value and they provided pension as excess increased by RPI/CPI plus total GMP figure at DOL ie £1000 rather than revalued figure and obviously that's a big difference compared with above

In your opinion Would GMP be revalued to 55 for early retirement?

Will go back to them asking for clarity

Howards

Thanks xylophone helpful info and links!! - The Barclays one looks a good win

All three are deferred and yes have obtained CETV for all but GMP does not have the same impact on 2 due to dates/NI/length of time worked at those Cos although must say continuing to assess and may only transfer one

Will request further clarity on a couple of areas and update
Thanks again appreciated

Howards

Hi xylophone
have now read through post 165 again and that suggests that GMP element is not paid at 60
but at 65 have I understood that correctly?

You mention bridging being provision of higher pension to SPA is that provided by the GMP?
Apologies really getting blind spot on this!!

It must be dependent on the scheme as suggested earlier

xylophone

have now read through post 165 again and that suggests that GMP element is not paid at 60

That is the case with the Barclays Scheme in the example and is not untypical of a private scheme.

Remember that GMP age for a man was and remains 65.



How the GMP is dealt with is very much scheme dependent.

With public service type schemes, what tended to happen was that the whole pension was paid at Scheme Pension Age and increased in payment according to Scheme Rules - for example, in one scheme I know well, with RPI at whatever rate that happened to be at the annual scheme increase date.

At GMP age, the pre 88 GMP, post 88 GMP and excess were split out, with the Scheme having no responsibility for pre 88 increase, responsibility for up to 3% RPI (later CPI) on post 88 GMP and RPI for the rest (scheme rules).

Howards

Thanks again will check with scheme - Norwich Union/Aviva just in case you know the rules

In the original information provided seems to show/calculate both pre & post revalued at 7% to SPA (in 1994)

I have assumed this is guaranteed and NU responsible for both pre&post - Am I correct??

xylophone

I have assumed this is guaranteed and NU responsible for both pre&post - Am I correct??

The Scheme must pay you at least your revalued GMP at GMP age.

However, once GMP age is reached, the Scheme has no obligation to index link that part of the pension relating to pre 88 GMP or that part relating to post 88 GMP above 3% CPI. (Or possibly RPI - I seem to remember that Schemes "hard wired" to RPI did have the choice a few years back ( when the Govt changed uprating of Additional State Pension to CPI) of remaining with the RPI rate for the post 88 GMP, but many chose to use CPI for this even though obligated by scheme rules to use RPI for the excess.)

Do you have your Scheme Booklet?

You really need to clarify your position with the Scheme Administrator.