No GMP indexation - really?

hyubh

dampsquib wrote: »

The idea of a GMP must have been a good idea when it was introduced, but now many pensioners seem to suffer from lower increases and inequality when their pension includes an element for GMP.

This ignores (a) revaluation between leaving and GMP age (b) the government's (generous) 'transitional' treatment for public sector scheme members' with a GMP, who are the biggest number of people as a class that would otherwise be affected.

As GMP still kicks in at 60 for women, they start to receive lower occupational pension rises than men of the same age, until men also become entitled to GMP at 65. There's a case going to court this year in an attempt to establish if this inequality needs to be tackled by pension schemes.

More complicated than it may first appear, since GMPs were (are) calculated relative to the number of qualifying years required for a 'full' state pension. Since women's SPA was historically five years before men's, their number of qualifying years was lower, and their GMP accruals consequently affected. Put another way: when a scheme does enter a GMP equalisation exercise, at what point GMPs are equalised makes a crucial difference to the end result.

The legal case was first mooted by the union at Lloyds, but I gather the union, Lloyds, and their pension scheme trustees are now jointly seeking a legal ruling.

IMO, if Brexit has any use (I'm a 'soft Remainer, so let's accept the result and get on with it'-type person if it helps!), it will quietly put this issue to pasture, notwithstanding my professional interests for GMP issues to run and run (I work in pensions)...

Billopp

I have only just seen this Forum about GMP indexation. It is a subject that I know something about.
I am going to start at when contracting out started and what Bbarbara Castle said when she was putting it through Parliament in HC Deb 18 March 1975 vol 888 cc1486-583
1486
§
Order for Second Reading read. 4.46 p.m.
§
The Secretary of State for Social Services (Mrs. Barbara Castle) I beg to move, That the Bill be now read a Second time.
https://api.parliament.uk/historic-hansard/commons/1975/mar/18/social-security-pensions-bill

Her are her words

I will explain the division of responsibility between the State scheme and the private schemes.
Once pensions have been put into payment, responsibility for increasing both the basic and additional components to take account of inflation will fall to the State scheme even where a pensioner is receiving some or all of the additional component from his occupational scheme.

As you
can see nothing can be clearer. When contracting out started in 1978 the occupational pension scheme onl had to provide the element of pension without any indexation. This is known as GMP

Then in 1986 Norman Fowler announced to Parliament a change to GMP indexation which stated the following to take place in 1988 which is now known as post 1988 GMP. If you read the note below you will see that he said, "but if inflation goes above 3 per cent., the state will fully inflation-proof over 3 per cent. a year" again nothing can be clearer.

If you then fast forward to 2004 and have a look at a DWP booklet .NP46

Hansard
Interpretation
HC Deb 15 April 1986 vol 95 cc748-92



If you then fast forward to 2004 and have a look at a DWP booklet .NP46 "A guide to state pensions dated April 2004 http://www.pensions-advice.me.uk/pdf/np46/np46apr04.pdf
and look at page 51 and 52

Protection against inflation

Each year the part of your pension earned from 6 April 1978
that replaces additional State Pension will be reviewed to ensure that
it is protected against inflation.
Occupational pensions built up before 6 April 1988 will have all the
increases needed to keep up with inflation added directly to your
additional State Pension.
Occupational pensions built up from 6 April 1988 to 5 April 1997
and personal pensions built up from 6 April 1987 to 5 April 1997, will
be at least partly protected by the scheme. The rate of increase will
be 3%, or equal to the rate of inflation if this is less. The rate of your
additional State Pension will be increased by any amount that
inflation goes up above 3%.

Again nothing can be clearer. The last booklet NP 46 was dated August 2008 and if you look at it on the web you will see that it no longer included the wording about GMP indexation being added to the state pension.

NP 46A detailed guide to
State Pensions for
advisers and others
August 2008
Part of the Department for Work and Pensions
https://www.taxation.co.uk/files/np46-guide-to-state-pensions.pdf


Up until then the DWP were happy to say that part or all of a persons GMP indexation was payable via the state pension

When the coalition Government was formed it was decided to change the state pension

Green paper "A state Pension for the 21st century" Consultation document issued 4 April 2011
. No mention of loss of GMP increases.

Pensions Bill MP's Information pack issued 19 May 2011 which mentioned that GMP increases were paid with the state pension under the existing system. No mention that GMP indexation was not going to be paid via the new state pension.to people reaching pension age on and after 6 April 2016/7

Pensions Bill 2011


MPs!!!8217; information pack
To be read in conjunction with the Pensions Bill, as read for a first time
in the House of Commons on 27 April 2011, and accompanying
Explanatory Notes
Version One
http://webarchive.nationalarchives.gov.uk/20110601202012/http:/www.dwp.gov.uk/docs/pensions-bill-mpip.pdf

If you read pages 18 to 20 which mentions the old system for working out GMP indexationex

page 20 paragraph 17
17. The £7.00 AP payable is how all the indexation of i) the GMP from 1978 to
1988; and ii) anything above three per cent for post-1988 GMPs, is provided by
the state

Again nothing can be clearer,some or all of the indexation is provided by the state..
I have had a read of the whole document and coud not see any mention of GMP indexation not being paid via the state pension.

When the White Paper dated January 2013. No mention of people not receiving GMP increases via the way the state second pension under the New State Pension.

Under a freedom of information request I started corresponding with the DWP trying to find out what was going to happen about GMP indexation because it had not been mentioned in any of the new state pension documents
https://www.whatdotheyknow.com/request/150015/response/376658/attach/2/FoI.1358.response.pdf?cookie_passthrough=1
Response
(1)Following the introduction of the new flat-rate State pension, there will no longer be any
direct comparison between the contracted-out pensions in payment and the State Pension.
Salary- related pension schemes will continue to increase pensions in line with existing
legislation.

That was the first time the DWP mentioned to me that GMP indexation would no longer be paid via the New State Pension.

When all this was happening I contacted the Treasury and they told me that they had been in correspondence with the DWP regarding what to do about non payment of GMP indexation for people in the Public sector .

By the time the DWP issued the White Paper in January 2013 they knew about non payment of GMP indexation but purposely left it off the white paper because the knew if it was mentioned there would be a great deal of trouble trying to explain why GMP increases would no longer be paid via the state pension.

questions were asked in parliament by Teressa Pearce and she received a reply from Steve Webb on the 6 January mentioning
https://www.theyworkforyou.com/wrans/?id=2014-01-06c.181793.h

(1) what estimate his Department has made of the number of people affected by ending the payment of guaranteed minimum pension increases;

(2) what impact assessment his Department has conducted of ending the payment of guaranteed minimum pension increases;

(3) what estimate he has made of the average loss to persons affected by ending the payment of guaranteed minimum pension increases;

(4) what estimate his Department has made of the total saving to the public purse as a result of ending the payment of guaranteed minimum pension increases.
He did not answer any of the Questions.
Steve Webb The Minister of State, Department for Work and Pensions
The Department for Work and Pensions does not pay increases on guaranteed minimum pensions (GMPs).

That was a strange reply from Steve Webb because he must have known that the Treasury and DWP were in discussion about GMP indexation for people in the public sector.
There was a good article in the independent which mentions possible loss of up to about £20,000.

I think this was the first article to mention loss of GMP indexation.

Losers who never knew in the switch to single-tier pensions | The .Independent 10 Jjanuary 2014

https://www.independent.co.uk/money/pensions/losers-who-never-knew-in-the-switch-to-single-tier-pensions-9052425.html..

Just before the new state pension was due to start the treasury announce

Government one step closer to introducing new State Pension this year

https://www.gov.uk/government/news/government-one-step-closer-to-introducing-new-state-pension-this-year
Government will fully index public service pensions for workers reaching State Pension Age from April 2016 to 5 December 2018

This seems strange asSteve Webb had mentioned to parliament on 6 january 2014 that the DWP did not pay GMP indexation so why was the Treasury now making public service schemes pay the GMP increases previously paid by the DWP for people reaching state pension age on and after 6 April 2016 and befre 6 December 2021.

Why did Steve Webb tell a porky.

As you can see the DWP have known about the loss of GMP indexation since at least as early as January 2012 and possibly earlier yet chose not top mention it to Parliament.
in my oppinion they have trie to introduce the change by stealth

Anyone affected by the loss of GMP indexation should write to the pension minister via their MP. Don't do it direct as you will receive a reply from the DWP

I think there are mostlt probably over ten million people affected by the loss of GMP indexation which only affects people in the private sector at the moment.

If anyone is interested I have a great deal of information on this subject.Hf .

xylophone

Government will fully index public service pensions for workers reaching State Pension Age from April 2016 to 5 December 2018

See latest House of Commons Briefing Paper by Djuna Thurley



BRIEFING PAPER
Number CBP-4956, 2 May 2018
Guaranteed Minimum Pension (GMP) increases



On 22 January 2018 it announced that the interim solution (full-indexation of GMPs earned in public service) would be extended for a further two years and four months, covering people who reach SPA on or after 6 December 2018 and before 6 April 2021.

I think there are mostlt probably over ten million people affected by the loss of GMP indexation which only affects people in the private sector at the moment.

Guaranteed Minimum Pensions will vary widely. The type of
person who will do comparatively worse under the reforms is
someone who has spent long periods in a contracted-out pension
scheme and is close to retirement on 6 April 2016, so has little
time to build up additional entitlement to new state pension. The
Department estimates that 180,000 people who will reach state
pension age in 2016-17 will have Guaranteed Minimum Pensions
from before 1988. The amount by which people will be affected
depends on their specific employment history. The Department!!!8217;s
modelling forecasts that 50,000 of these people will be worse off
in 2017-18 as a result of the introduction of new state pension
(paragraphs 3.13 to 3.17).

Terron

I am a bit comfused by this discussion. I have a post-88 GMP of ~£500 in a schem I intend to start using next year though my SPA is 2025.


My understanding was that the GMP portion would be index linked up to a cap of 3%, whereas the rest of the pension is index linked up to 5%. Is that right?


I was expecting not to get any increases related to the GMP with the new SP>

xylophone

Are you a deferred member of this Scheme?

If so, do you have your statement of deferred benefits on leaving?

If so, by what method did the GMP revalue in deferment?

Is it a public service scheme or is the pension aligned to a public service scheme?

Are you taking the pension at Normal Scheme Retirement Age?

Are you male or female?

Do you have a copy of the scheme booklet?

Terron

xylophone wrote: »

Are you a deferred member of this Scheme?

If so, do you have your statement of deferred benefits on leaving?

If so, by what method did the GMP revalue in deferment?

Is it a public service scheme or is the pension aligned to a public service scheme?

Are you taking the pension at Normal Scheme Retirement Age?

Are you male or female?

Do you have a copy of the scheme booklet?

I actually have 2 pensions with GMPs, both in deferrment.
For the older snaller one it looks like the GMP should be increased by 7% a year for someone who left when I did. Unfortunately i the company that now owns it has been giving very few increases. This was discussed in parliament - https://www.theyworkforyou.com/whall/?id=2017-01-17a.269.0
I haven'tfound the GMP uprating system for the other scheme.


Neither are public sctor schemes or lnked to sych.


The first scheme has a NRA of 60 - next year when I plan to take both. The other has a NRA of 65.


I probably have the original booklets somewhere, but I can't find them at the moment.

xylophone

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

The scheme must pay your GMP.

Are you male or female?

hyubh

Terron wrote: »

For the older snaller one it looks like the GMP should be increased by 7% a year for someone who left when I did. Unfortunately i the company that now owns it has been giving very few increases. This was discussed in parliament - https://www.theyworkforyou.com/whall/?id=2017-01-17a.269.0

No, these are two different things:
1) The 7% refers to fixed rate revaluation for GMP in deferment for members who left in the 93/94 to 96/97 tax years.
2) The parliamentary discussion linked to is about increases on the excess in payment

A scheme doesn't get a choice as to whether to revalue GMP or not, though it does in respect of the revaluation type used (fixed vs. S148, and back in the day, 'limited') - while most private sector schemes use fixed, not all do.

The first scheme has a NRA of 60 - next year when I plan to take both. The other has a NRA of 65.

GMP ages are independent of scheme NRAs. If the latter is lower than the former, then a common approach is to treat the GMP as excess between retirement and GMP age, but that isn't a requirement.

Billopp

Terron



Your occupational pension scheme should pay you up to £3% max on post 1988 GMP and if higher the balance under the old system would have been paid via the state pension but won't now be paid under the new sate pension. What you say in the paragraph below is most probably correct.

Have you been officially been told by your occupational pension scheme that you will not receive GMP indexation under the NSP.. I would be interested to know how you found out about the change to GMP indexation. It is the people with pre 1988 GMPs that have most to loose.. Could be over £15,000.


My understanding was that the GMP portion would be index linked up to a cap of 3%, whereas the rest of the pension is index linked up to 5%. Is that right?


I was expecting not to get any increases related to the GMP with the new SP>

Billopp

xylophone

I have seen the the House of Commons Briefing note

I think you will find out the DWP have tried to justify the change by saying that people will gain by other changes which are not all true. If this is the case why are people in the public sector having their GMP indexation on GMPs paid via t their occupational pension if they reach state pension age prior to 6 April 2021.
They have kicked the bucket down the road regarding what to do about people in public sector who reach state pension age on and after 6 April 2021 .

None of this affects me as I reached state pension age prior to the New state pension starting. I reached state pension age in 2005 and my actual AP was about £2 pw and is now almost £35 pw because of my GMP indexation payable by the DWP with my state pension.
For some reason I can't fathom out Steve Webb told Parliament that the DWP does not pay GMP indexation..

As far as I can see the change in legislation has been done by stealth. It was never mentioned in rGeen or White Papers or Pensions Bill 2011 MPs' information pack issued in May 2011.GAD in their reports about the affect of loss of GMP indexation give examples of where the loss of GMP indexation by the DWP can be greater than £20,00 .Women suffer a greater loss than men.tpe

Guaranteed Minimum Pensions will vary widely. The type of
person who will do comparatively worse under the reforms is
someone who has spent long periods in a contracted-out pension
scheme and is close to retirement on 6 April 2016, so has little
time to build up additional entitlement to new state pension. The
Department estimates that 180,000 people who will reach state
pension age in 2016-17 will have Guaranteed Minimum Pensions
from before 1988. The amount by which people will be affected
depends on their specific employment history. The Department!!!8217;s
modelling forecasts that 50,000 of these people will be worse off
in 2017-18 as a result of the introduction of new state pension
(paragraphs 3.13 to 3.17).