No GMP indexation - really?

xylophone

Of course the state pension never said the it would meet all of the indexation.

1978 saw the introduction of SERPS. Employers/employees paid additional NI contributions to build up a pension in addition to the basic state pension.

However, in return for guaranteeing a pension that was at least as great as would be provided by SERPS, employers/employees could contract out of the SERPS scheme and pay lower NI contributions.

As a sweetener to employers, the state guaranteed that when the state pension came into payment, ( and in the case of men especially this was often several years after the occupational scheme came into payment), it would pay inflation linked increases on that part of the occupational pension that represented the GMP.

In 1988, the government wished to save money on the inflation linking guarantee and therefore the requirement became that the Occupational Scheme would have to inflation link that part of the occupational pension representing post 88 GMP up to 3%- if inflation was over 3% the government would pay the balance.

This worked as intended except where a person became a deferred pensioner of a scheme using Fixed Rate (rather than Full Rate) in deferment.

See link to thread in post 48 above.

Terron

DairyQueen wrote: »

I didn't make clear that the benefit statement (on leaving) stated that the excess would be increased by RPI up to 5%. At some point (unknown, I was never informed) the scheme decided that this would change to 'discretionary increase'. In the five years prior to 2016 the scheme had missed giving any inflationary increases, on excess in payment, for three years and below CPI increase on two more years.

Since 2002 my first DB pension scheme has granted 1% rises in 2004 and 2008 and nothing in any other year,. In 2006 it was merged with the scheme of the company that had taken over the company that took over the one I worked for. The current rules say it is discretionary based on acturarial advice.. Complaints have been made and rejected, so it seems there is nothing that can be done. IT is very disappointing though.

DairyQueen

Terron wrote: »

Since 2002 my first DB pension scheme has granted 1% rises in 2004 and 2008 and nothing in any other year,. In 2006 it was merged with the scheme of the company that had taken over the company that took over the one I worked for. The current rules say it is discretionary based on acturarial advice.. Complaints have been made and rejected, so it seems there is nothing that can be done. IT is very disappointing though.

I didn't ask about increases prior to 2011. I wouldn't be at all surprised if the profile of my scheme increases wasn't that dissimilar to yours. I now believe that the scheme rules always stated these inflationary increases were 'discretionary'. However, the scheme rules were never issued to active or deferred members. Even when I requested a copy in in 2016 it was never issued. The administrator simply answered question by reference to 'the rules'.

My biggest mistake was to rely on that leaving benefit statement as definitive. It never occurred to me that it could be changed, let alone that something as significant as indexation could be changed, without advising deferred members. Given that government and DB schemes have also spectacularly failed to publicise the changes to GMP indexation, there must be ,000s of people who will receive a nasty shock as they approach retirement.

I was delighted to receive an enhanced CETV offer last year. Even more delighted that my circumstances are such that the IFA recommended transfer. I would rather take my chances with self-investing than face the certainty of a pension guaranteed to lose value each year for the rest of my life.

You have my sympathy - 'disappointing' is an understatement.

Terron

DairyQueen wrote: »

I was delighted to receive an enhanced CETV offer last year. Even more delighted that my circumstances are such that the IFA recommended transfer. I would rather take my chances with self-investing than face the certainty of a pension guaranteed to lose value each year for the rest of my life.

You have my sympathy - 'disappointing' is an understatement.

And you mine.

I asked an IFA to review my pensions and he recommeneding tranferring my pure DC one to a SIPP but I don't know if he noticed this. I will bring it up at our next meeting.

Terron

Just spoke to someone from my first scheme.
He said the GMP will have no effect until I am 65.
Until then it will be increased by 7% a year and should be over £3k by then.
When I get to 65 if my pension is in payment and assuming it is greater than the GMP (should be over £4k) then the GMP part will be split off and from then on it will be increased by CPI with a cap of 3%,

DairyQueen

Terron wrote: »

Just spoke to someone from my first scheme.
He said the GMP will have no effect until I am 65.
Until then it will be increased by 7% a year and should be over £3k by then.
When I get to 65 if my pension is in payment and assuming it is greater than the GMP (should be over £4k) then the GMP part will be split off and from then on it will be increased by CPI with a cap of 3%,

Sounds like your scheme worked in a similar way to mine. Unfortunately, my GMP wasn't that significant so a large chunk of the pension would have been subject to the vagaries of 'discretionary' indexation (read 'less than inflation'). I guess, in my naivety, I had trusted the company and government not to welch on the deal. Fool me once.... etc.

I feel a lot less vulnerable now I am in control of the pension. Like I said previously, this wasn't one of the main factors for taking the transfer offer but a side effect (ironic) is that I sleep better. At least the markets are a known unknown. Better that than having a known become an unknown.

My husband's DB is due to move into payment next year. He wants to defer but is hesitating at the prospect of some detrimental 'scheme rule change' which he may not be made aware of until after the fact. If they pull the plug on his indexation then we are screwed.:eek:

Terron

DairyQueen wrote: »

Sounds like your scheme worked in a similar way to mine. Unfortunately, my GMP wasn't that significant so a large chunk of the pension would have been subject to the vagaries of 'discretionary' indexation (read 'less than inflation').

Iy wasn't that significant part originally, but it has been and is growing faster.

Tom99

[FONT=Verdana, sans-serif]A slightly different question on GMP indexing.[/FONT]
[FONT=Verdana, sans-serif]If you had a pension sharing order which reduced your pension in payment by say 50% is the GMP on which indexation is removed or capped at 3% also reduced by 50%?[/FONT]

hyubh

Terron wrote: »

Iy wasn't that significant part originally, but it has been and is growing faster.

And for the same reason (the GMP revaluing at 7% fixed), you wouldn't have got (in effect) increases on the GMP with your state pension for many years hence anyhow...

vaseymw

Dox wrote: »

The scheme will continue to provide your GMP, so the cost of buying an annuity from a commercial provider with/without index linking isn't what you've lost: you have 'lost' the income from index linking on £6,500 from age 65. Assuming 3% pa, that is approximately £200 a year. If you live until you are 90 (25 years) and ignoring compounding, that's £5,000 - more if you compound the increases (around £13,500), but in reality inflation may well drop below 3% (and yes, it could rise too, but I'm keeping the figures simple). Even allowing for this, there will still be a massive difference between your calculation of £110K and mine.

Your calculation of the loss over 25 years of a £6500 GMP is way too low. By the 25th year at 3% compound per annum the loss is over £6700 in that last year alone. The total loss by the end of the 25th year is just under £75000 - which starts to explain the £110K annuity cost to deliver this.