Question-Government confirms GMP fixed rate revaluation ...

C_Mababejive

Government confirms reduced GMP revaluation rate plans - Pensions Age Magazine

Government response: Guaranteed Minimum Pension Fixed Rate Revaluation - GOV.UK (www.gov.uk)



Hi all, im currently trying to understand this and how occupational DB pensions are increased.

The common apparent misconception amongst many workers in DB schemes is that their pension ,when they take it, will increase by RPI. 

I think im right in saying that things arent as clear cut as that?

Many DB pension schemes allow people to retire early and take reduced benefit from aged 55 whilst if they work on until 60 , they can take their "full" pension with no reduction irrespective of state retirement age (SRA).

This is the same as my scheme.

Looking at the blurb on my company pensions website it appears that increases in pensions are tiered with talk of pre/post/88 GMP etc,all very confusing to a non expert.

So what does it all mean and in particular, what would it mean for me if i were to retire at 60 on an apparent "full" pension but not having yet reached 65 or my state pension age?


Are we saying that an as yet not understood fraction of my DB pension would only increase by the above GMP valuation figure? 

How did they arrive at the above figure given the current state of inflation and possible wage growth? Siurely that chunk of pension is going backwards/being devalued?

What will happen at the GMP age of 65 ?

Thanks for any input to help me understand

xylophone

Are you currently an active member of your DB Scheme?

If so, "Fixed Rate Revaluation" of GMP has no relevance to your situation.

It relates to the revaluation of the GMP within the deferred pension of an "early leaver".

  Currently, trustees have the choice of two different methods of revaluing GMPs: Full Rate increases or Fixed Rate increases.  Schemes which opt for increases at Full Rate increase their GMPs annually in line with Section 148 Orders (previously known as Section 21 Orders). Section 148 Orders are based on the increase in the National Average Earnings Index each year.

Fixed Rate revaluation increases are determined by the date of termination of pensionable service.  The annual percentage increase is fixed and depends on the date of leaving.

See 

Revaluation before retirement

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

C_Mababejive

I'm currently an active member but could potentially retire and start taking DB benefits soon at aged 60. I'm just trying to decode the terminology and find out exactly what it means for me in terms of money and pension increases .

Silvertabby

Are you male or female ? ( still relevant in GMP world).

Are you in a public or private DB scheme?

C_Mababejive

private DB male

xylophone

I have just noticed that you provide details from your scheme booklet here.

https://forums.moneysavingexpert.com/discussion/comment/79312657/#Comment_79312657

hyubh

C_Mababejive said:

The common apparent misconception amongst many workers in DB schemes is that their pension ,when they take it, will increase by RPI. 

I think im right in saying that things arent as clear cut as that?

A DB pension simply increasing by RPI would be an unusual case, yes.

Many DB pension schemes allow people to retire early and take reduced benefit from aged 55 whilst if they work on until 60 , they can take their "full" pension with no reduction irrespective of state retirement age (SRA).

The first part is true, the rest isn't. Making members' normal pension age in an occupational scheme the same as their state pension age (whatever that comes to be) was not really a thing until the current iteration of public sector schemes came into being between 2014 and 2015. Partly this was due to the sex discriminatory nature of state pension ages until relatively recently (basically pension schemes were made to made their normal pension ages neutral between men and women long before the government equalised state pension ages). So instead, you'd have from the early 90s a normal pension age of 60 or 65 that wasn't affected by state pension ages eventually rising.

Looking at the blurb on my company pensions website it appears that increases in pensions are tiered with talk of pre/post/88 GMP etc

Yes, it will be normal in most private sector DB schemes for different 'tranches' of pension to attract different increase rates. Core splits are:

• Pre-88 GMP
• Post-88 GMP
• Pre-85 excess (i.e. basic scheme pension accrued for the period minus the GMP)
• Pre-97 excess
• Post-97 excess
• Post-05 excess (depending on scheme)

This is because these different tranches attract different statutory minimum increases.

NB: 'revaluation' = how the pension rises between leaving active membership of the scheme and drawing the pension (or for GMP, when it is due to be paid). 'Pension increases' = how the pension rises once in payment.

So what does it all mean and in particular, what would it mean for me if i were to retire at 60 on an apparent "full" pension but not having yet reached 65 or my state pension age?

You will need to refer to your particular scheme rules. So as xylophone, the GMP fixed rates you quoted are irrelevant unless you have a gap between leaving and retiring.

Are we saying that an as yet not understood fraction of my DB pension would only increase by the above GMP valuation figure? 

If a pension including a GMP component comes into payment before GMP age (60 for a woman, 65 for a man), how the GMP is dealt with is down to the scheme. The scheme must just pay the revalued GMP at GMP age.

What will happen at the GMP age of 65 ?

Assuming you're male, the GMP/excess split will be redetermined, and potentially, the total pension adjusted. This assumes you have a GMP with the scheme of course. If you don't, then nothing will happen.

C_Mababejive

Thanks all, i need to have a good read of this, understand terminology and work out what it means for me..