GMP

uk1

I’ve been trying to find the answer to what I thought was a simple question but have failed miserably.  

For those that retired under the old state pension that were contracted out of SERPS under their old employers defined benefit scheme, are all scheme members that were contracted out better off than if they had received SERPS? If the company DB scheme no longer makes any annual increases to the pension being paid, then would the answer be the same?

I’ve read that to contract out there originally needed to be parity or better between the contracted out scheme and SERPS but I’m unclear whether that remained true subsequently or whether there were any later relevant rule changes?

Thanks. 

xylophone

For those that retired under the old state pension that were contracted out of SERPS under their old employers defined benefit scheme, are all scheme members that were contracted out better off than if they had received SERPS? If the company DB scheme no longer makes any annual increases to the pension being paid, then would the answer be the same?

The schemes had to provide a pension that was at least as great as would have been earned under SERPS.

This was the Guaranteed Minimum Pension.

A scheme normally provided more than the minimum - this was the excess over GMP.

In terms of increases in payment to the GMP, the scheme was not bound to pay any increase in pre 88 GMP,  and only up to 3% CPI/RPI on post 88 GMP.

Increase to excess depended on scheme rules.

It was originally intended that inflation increases on pre 88 GMP and anything over 3% on post 88 GMP should be provided through a mechanism within the state pension scheme.

However, where a scheme pension was deferred, and the Trustees chose Fixed Rate revaluation on the GMP, this usually resulted in a contracted out deduction higher than the notional SERPS that would have been earned so that the pensioner received no increase on the pre 88 GMP for a number of years, if ever.

https://researchbriefings.files.parliament.uk/documents/SN02674/SN02674.pdf

uk1

Many thanks xylophone, 

It looks like it may be as I suspected and that is if you are in a scheme that isn’t making increases then you would have, or might have reached a point when SERP might have made you better off because of the increases. 

Still … not an awful lot I can do about it.

Thanks again for your time.

hyubh

uk1 said:

Many thanks xylophone, 

It looks like it may be as I suspected and that is if you are in a scheme that isn’t making increases then you would have, or might have reached a point when SERP might have made you better off because of the increases. 

No, because of your stated assumption ('For those that retired under the old state pension...'). Those who met SPA pre-16 continue to have the old mechanism in effect.

uk1

hyubh said:

uk1 said:

Many thanks xylophone, 

It looks like it may be as I suspected and that is if you are in a scheme that isn’t making increases then you would have, or might have reached a point when SERP might have made you better off because of the increases. 

No, because of your stated assumption ('For those that retired under the old state pension...'). Those who met SPA pre-16 continue to have the old mechanism in effect.

Thanks.  

By “pre16” do you mean pre-2016 - was this the year of change from old state pension to new state pension?

What is the specific “old mechanism” that I have incorrectly assumed - is it that the employer  IS OBLIGATED to increase GMP pensions and if so by how much.

Thanks again …. 

hyubh

uk1 said:

hyubh said:

uk1 said:

Many thanks xylophone, 

It looks like it may be as I suspected and that is if you are in a scheme that isn’t making increases then you would have, or might have reached a point when SERP might have made you better off because of the increases. 

No, because of your stated assumption ('For those that retired under the old state pension...'). Those who met SPA pre-16 continue to have the old mechanism in effect.

Thanks.  

By “pre16” do you mean pre-2016 - was this the year of change from old state pension to new state pension?

What is the specific “old mechanism” that I have incorrectly assumed - is it that the employer  IS OBLIGATED to increase GMP pensions and if so by how much.

Thanks again …. 

If you reached SPA before 6/4/16 then there is no change. DWP have your GMP at GMP age (60/65) and GMP revaluation rate if you were an 'early leaver', there's nothing they need from the old employer or occupational scheme to apply the contracted-out deduction (COD) mechanism as before. This includes the fact that at a certain point, it is possible that the contracted-out deduction falls below the notional SERPS in payment, and therefore the state pension starts to include the difference.

It's down the scheme to take into account you have a GMP and (if applicable) deal with the scheme pension increase implications, nothing new under the sun there either....

uk1

Thanks for your patient reply.

xylophone

You might find this thread of interest.

https://forums.moneysavingexpert.com/discussion/4532605/totally-confused-by-contracted-out-deduction-letter

uk1

Thanks for the link X,

I think the issue is that this is a topic I use to fully understand but I retired from the company DB scheme at 53’ish and over time and with the later state scheme changes and elapsed time  I de-understood it if you get my drift. But basically I think it fair and simple to presume that I didn’t lose anything by being in the DB scheme that opted out even though they failed honour it’s “annual increase promises” made. Some of the material that clarified the changes simply confused me more!

Thanks again for the time and patience. 

xylophone

opted out

Contracted Out...

Can you clarify, did you reach  SPA  pre 6/4/2016?

though they failed honour it’s “annual increase promises” made. 

Do you have pre 88 as well as post 88 GMP?

When you say "annual increase promise", do you mean GMP? Or excess?

brewerdave

I did a lot of "what if" calculations on my pre 88 GMP when I reached my SP age in 2015. Using a realistic view of future inflation (NOT at the current frightening levels) , I reckoned that I would have to live to 123 before the loss of SP thru SERPS would equal my pre 88GMP paid thru the Company scheme. !! My GMP was revalued every year from my leaving date until my SP date.