estimated additional state pension

worn_out

can someone explain how, when you've contracted out of serps and have a GMP, the pension service calculates your 'theoretical' serps figure ? (additional state pension)



when i got my oap statement on retirement it said my GMP was higher than my estimated serps, therefor i don't get additional state pension or the annual inflation bit on my pre 1988 gmp...or anything above 3% on my post gmp...


so ok i know my GMP, pre and post 1988...but how do they work out what your serps 'would have been', and what period would it cover ? Mine looks quite low compared to my gmp and while i know my gmp was inflated by 8.5% a year up to retirement...my salary rose , on average, almost as much due to career progression and pay awards.. My gmp in total was approx £140pw but my estimated SERPS was only £80...this means i'll never get pay awards on my pre 1988 gmp element.


Can anyone enlighten me ?

Dox

See if this helps (including the links in the article): https://www.thisismoney.co.uk/money/pensions/article-4187806/What-Guaranteed-Minimum-Pension-Steve-Webb-replies.html

worn_out

thanks for that link, which i've read through..it does describe the process, and the reasoning but doesn't actually describe the methodology in how the serps increases when you've contracted out. It's a theoretical calculation assuming you had stayed in the state scheme but it does say it should be similar to the gmp..which in effect is the same (estimated) thing. the fact my estimated serps is only just above half of what my total gmp is makes me wonder how it is so different ? if i exclude the post '88 gmp i'm still receiving £98pw under gmp compared with £80pw under the estimated serps I have foregone. According to my annual pension statement the gap between gmp and the serps is so big it will never pay me anything, so my pre'88 gmp is static with no inflation, and my post '88 gmp is fixed at 3% regardless of how high CPI goes. I really need to know how the theoretical serps figure is calculated - i actually retired at 54 but my gmp continued at 8.5% increases until 65, whereas my earnings for that period were nil...maybe that's the answer, i don't know ...

xylophone

Are you receiving state pension under the old or the new rules?

If under the old rules, was your occupational pension deferred?

If so, see post 23 onwards

https://forums.moneysavingexpert.com/discussion/4532605/totally-confused-by-contracted-out-deduction-letter&highlight=gmp+revaluation%20%20&page=2

worn_out

Receiving my state pension since 2015 so old rules. Didn't defer my work pension, took it when I retired at 54, but former (previous employer) works pension I took when 65.

Malchester

I got my state pension forecast. Not yet retired (2024). Forecast is that I will get more than the basic state pension even though I was contracted out (LGPS) for 11 years. I have over 40 years NI contributions already. I assume it is due to the assessment made in 2016

worn_out

ok, think i'm getting there...so my pensions notice in 2014, applying from 03/2015 when I was 65 said -


additional state pension between 6/4/78 - 5/4/97 was £79.62
COD (GMP) for the same period as above was £139.87
Additional state pension 6/4/97 - 5/4/02 was nil

Additional state pension from 6/4/2002 was £1.24
graduated benefit 1961-1975 was £4.20


basic state pension £113.10


total state pension £118.54


my GMP from contracting out was


between 1978/9 and 1986/7 £98.18 (left this employer 13/3/87) [Pre 1988]

between 1986/7 and 2004/5 £41.69 (early retirement taken 31/8/04) [of which £4.84 was Pre 1988]



the first of the above figures was increased at the rate of 8.5% pa until 2015 and is now paid but without any annual inflation added.
the 2nd of the above figures was paid out with my early retirement pension from 31/8/04 and am told can be increased by up to 3% by my former employer. I assume this GMP was based on my annual earnings up to early retirement ?


so I understand where my GMP has come from..but the state calculated AP of £79.62 has no workings to check against. Does it compare like for like with my 2 GMP's , ie dates and earnings..is it valued as at 2015 like my higher GMP was, does it use my own salary or average across the board earnings ?


As I've said earlier, there is no prospect of my AP ever overtaking my GMP..the gap in 2015 was £60.25 and that gap last year was still £58. My Pre88 GMP will continue to lose value year on year because i am theoretically better off than I would have been staying in SERPS ...

zagfles

Working out your SERPS entitlement is incredibly complicated. Basically it's a percentage of your earnings between the LEL and UEL/UAP which is then indexed with earnings each year. This is the best guide I've found https://webarchive.nationalarchives.gov.uk/20100208140040/http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@over50/documents/digitalasset/dg_180938.pdf

If you had remained in the contracted out scheme until retirement your SERPS and GMP should be about the same, but it sounds like you left before 1988, if you got 8.5% revaluation of GMP in deferrment. Your SERPS would only have been revalued in line with average earnings indexation, hence the big difference.

You are not losing out from this, you are gaining massively because you get the benefit of the high GMP indexation which is only partly offset by the loss of SERPS in your state pension. Had the GMP and SERPS both been indexed by earnings, they'd both be £80, and you would get inflation increases on SERPS in your state pension. But you'd be worse off as you'd be getting £60pw less pension now.

This assumes your GMP hasn't been "franked" which can happen eg if you took early retirement - that'll be down to your scheme rules.

worn_out

Hi Zagfles - thank you for that info...and yes I am better off, I realise that...I don't know if my early retirement benefits were franked or not, I suspect not as it was a local govt scheme and I was given added years to retire early..I guess back in the 70's 8.5% pay awards were seen as the norm, and I was indeed lucky to have that apply right through to 2015...I actually did a section 32 and put my GMP into a private funder at no risk but with a small possibility they could outperform 8.5% growth (some chance....!) .


just as an aside the £79.62 AP caluation can presumably be worked backwards if I find the index tables that were used, similarly with my GMP..and the resultant figures should be the same ? Job for a rainy day maybe ...

zagfles

worn_out wrote: »

just as an aside the £79.62 AP caluation can presumably be worked backwards if I find the index tables that were used, similarly with my GMP..and the resultant figures should be the same ? Job for a rainy day maybe ...

No you can't work backwards, SERPS is not like a "final salary" scheme, it's like a CARE scheme, each year's earnings are indexed and added. So it depends on exactly what you earned in each year.

And it's not taxable (P60) income you need, it's NI'able income within the LEL-UEL/UAP band. Main differences are NI'able income would include pension contributions assuming net pay (which I think all local govt schemes use), P60 income won't, and income above the UEL/UAP in each pay period won't count - if your earnings were variable you might have to go down to the level of each payslip since it works on a pay period basis - for instance say the UEL was £36000 (£3000 a month) in a particular year, and your salary was £33000 (£2750 a month) but you did some overtime taking your total to £37000. You might think you only need to disregard the £1000 above the UEL, but no, because as it works on a pay period basis, you need to disregard any month's earnings above £3000. So if that overtime was over a couple of months, you'd need to disregard it all except the first £250 each month.


Have a read of the link I posted above - you'll need lots of time and lots of strong coffee! Plus details of your earnings each year (maybe each month as above) back to when you started work.

zagfles

PS I think this is the earnings indexation table you'll need, I believe it doesn't include indexation in the year before you get the state pension
http://www.legislation.gov.uk/uksi/2013/527/schedule/made

Note that applies up to when you started getting the pension, in payment indexation is CPI