Good news story. Benefits in excess of GMP

mark55man

Just helping someone at work who knows I am a keen reader on pensions albeit self confessedly amateur.  I thought you all might like to read a good news story, although one that shows the importance of being informed

He had been planning his legacy pensions on the basis that one from employment in the 80s/90s which had a GMP of about £2K pa would give him around £2K a year at 65 - so better than nothing but not a big deal.   He just got his projection 2 months before his 60th in May and had the £2K but also has earned benefits in excess of GMP of £12K - plus because his employment there bridged key dates in the 90s he can draw it in May without actuarial reduction.

Although leaving it for another 5 years would cause it to accrue further at GMP rates (5%+CPI), he has calculated that 15 years to recover the money not taken is not as attractive to him as an unexpected £15K p.a 8 weeks from now.    (he swears he wouldn't have done anything different had he known, but obviously his next few years will be different and in his shoes I would be considering possible early retirement as that is a good %age of his current salary)

DT2001

Interesting. I have a GMP element in my Barclays pension. Whilst I have taken the pension before NRD the GMP element is not revalued until 65. Like your colleague the increase from date of deferment has been very pleasantly surprising (£1.3k to £9.5k). The downside is once in payment part (accrued pre 88) does not increase at all and the rest by CPI, Max 2.5%, I think (balance increases by RPI). In my case the GMP increase at 65 was offset against increases since taking pension early.
Gist is, check all the details. It is good news - I was delighted by the help forumite xylophone gave me in understanding my benefits (better than I thought especially in early years of retirement).

mark55man

Thank you.  Yes 10 minutes with excel and this website https://www.barnett-waddingham.co.uk/comment-insight/blog/what-is-a-gmp/ were very illuminating / eye opening

The following extract from the above site accounts for the significant enhancement - that and the passage of 25 years Leavers after 5 April 1978 but before 6 April 1988 8.5% p.a.
Leavers after 5 April 1988 but before 6 April 1993 7.5% p.a	.
Leavers after 5 April 1993 but before 6 April 1997 7.0% p.a.

DT2001

GMPs can be revalued using section 148 orders (full) revaluation, fixed rate revaluation or, where the date of termination is before 6 April 1997, limited rate revaluation.

The bit above is from gov.uk website (https://www.gov.uk/guidance/how-to-calculate-your-scheme-members-guaranteed-minimum-pension) So 3 possibilities of revaluing!

mark55man

Ha - not an area I had studied as none of mine were in this category.  However very interesting - I wonder if you get to revalue 3 times and pick the best result

Marcon

mark55man said:

Ha - not an area I had studied as none of mine were in this category.  However very interesting - I wonder if you get to revalue 3 times and pick the best result

No. The scheme rules dictate the method of revaluation.

xylophone

Does your friend have his statement of benefits on leaving service?
Pre 88 GMP
Post 88 GMP
Excess?

He has confirmed that the Scheme uses Fixed Rate in deferment?

As he is male, his GMP age is 65 - is he going to receive a pension including the GMP revalued to age 60 or is he going to receive his excess pension revalued in line with scheme rules but his unrevalued GMP (to be revalued with a possible pension step up at age 65?)

How will the pension increase in payment?

Is he aware that when he reaches age 65, the scheme has no obligation to increase that portion of his pension that represents  pre 88 GMP and the post 88 portion by only up to 3%?

Has he obtained a state pension forecast?
https://www.gov.uk/check-state-pension

mark55man

Hello I think I can answer now, I may not see him for a bit so happy to answer on his behalf but not my scheme not my monkeys
.
Pre was £200 (see below) Post was £2000.  Excess was £12000

Fixed rate in deferment - don't know, what he showed me just had the numbers for 65 - I think your question means that although he can take it now at the same value when he is 65, if he waits a year that value at 65 (and assuming he can take that value at 61) will have gone up by the fixed rate in deferment.  I did calculations assuming 7% and 8% on his profile and ROI of payments started at different dates didn't convince him,  He's been offered a bucket load of jam today, and he can't see that there may be extra cream tomorrow (well 5 years time)

GMP was estimated for 65, then an additional statement said it was the same if he took it at 60.  I remember this as my own actuarial reduction is 6% per year, so I winced!!.  That said the words AR didn't come into the conversation so I may have been projecting that terminology onto GMP

Increase in pay - don't know - although he mentioned 3% and I thought despite fears of inflation he should be OK

Pre 88 - was very low maybe 10% of the £2K - I remember that conversation as my own first employment started the year before and he is a bit older than me.
 

TVAS

DT2001 Pre 88 GMP is increased by the state not the scheme.

DT2001

TVAS said:

DT2001 Pre 88 GMP is increased by the state not the scheme.

I think not in this case following change to SP in 2016.