Pre-1988 GMP fiasco

Fernzy

I am 66 and requesting defined benefit scheme preserved pension quotations. Did the same last year (2022, age 65). 

I have two issues both to do with the pre-1988 GMP (Guaranteed Minimum Pension when contracted out of the state pension for those years pre-1988).

1) deferred retirement quote last year included a scheme pension and tax free cash sum option. New deferred quotation this year a year later is just pre-1988 GMP, no scheme pension or TFCS option.

2) Contradicting scheme leaflet, no escalation on the pre-1988 GMP. Leaflet says part scheme and part government. Seems like the government does not escalate the GMP either. Does anyone know when was the last time the GMP escalated?

I have complained that had I accepted the 2022 quotation this would be in payment now - also never had any communication that scheme pension would cease to have deferred increase after age 65. Should I need to escalate what would be the next steps.

I have planned my retirement around the 2022 quote.

Marcon

Fernzy said:

I am 66 and requesting defined benefit scheme preserved pension quotations. Did the same last year (2022, age 65). 

I have two issues both to do with the pre-1988 GMP (Guaranteed Minimum Pension when contracted out of the state pension for those years pre-1988).

1) deferred retirement quote last year included a scheme pension and tax free cash sum option. New deferred quotation this year a year later is just pre-1988 GMP, no scheme pension or TFCS option. Sounds a bit odd, but could result from the scheme equalising GMPs. You'd need to ask the scheme direct on this point.

2) Contradicting scheme leaflet, no escalation on the pre-1988 GMP. Leaflet says part scheme and part government. Seems like the government does not escalate the GMP either. Does anyone know when was the last time the GMP escalated? State increases on pre-88 GMP were abolished from 6 April 2016, when the new state pension was introduced. 

I have complained that had I accepted the 2022 quotation this would be in payment now - also never had any communication that scheme pension would cease to have deferred increase after age 65. Should I need to escalate what would be the next steps. GMP revaluation stops at age 65 for men, but if you have any pension in excess of GMP, this would continue to increase in deferment IF your scheme has a normal retirement age higher than 65, OR has a late retirement option. GMP may also increase, but in line with scheme rather than statutory increases.

I have planned my retirement around the 2022 quote.

Please see above. If you need to escalate, use the scheme's Internal Dispute Resolution Procedure. It's scheme-specific and your administrators should supply a copy on request.

Tommyjw

You say you have a leaflet that says it has no increases, but then say you were never told it would not increase.. it seems like you have all the information you may have needed.

Likewise, I imagine when you left the Scheme you would have received a leaver statement which I imagine would have explained various points

I've never seen a retirement pack in recent years that doesn't mention GMP and the impact it may have. Similarly, for those Schemes that have them, booklet type communications usually explain.

xylophone

I am puzzled by the situation described.


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


When exactly were you a member of this scheme?

Is the Scheme Guide available on the internet?

When you left the scheme, what exactly did your statement of  deferred benefits on leaving  show as to

pre 88 GMP

post 88 GMP

Excess over GMP

Was this the only contracted out scheme of which you have ever been a member?

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

What is the COPE shown?

hyubh

Marcon said:

1) deferred retirement quote last year included a scheme pension and tax free cash sum option. New deferred quotation this year a year later is just pre-1988 GMP, no scheme pension or TFCS option. Sounds a bit odd, but could result from the scheme equalising GMPs. You'd need to ask the scheme direct on this point.

A GMP equalisation exercise won't result in the simple replacement of escalating excess with non-escalating GMP. For a start, pre-88 GMP isn't subject to equalisation in the first place! Maybe you're thinking about a (belated) implementation of a GMP reconciliation exercise..?

2) Contradicting scheme leaflet, no escalation on the pre-1988 GMP. Leaflet says part scheme and part government. Seems like the government does not escalate the GMP either. Does anyone know when was the last time the GMP escalated? State increases on pre-88 GMP were abolished from 6 April 2016, when the new state pension was introduced.

Technically GMP was never increased by the state before 2016 either...

Marcon

hyubh said:

Marcon said:

1) deferred retirement quote last year included a scheme pension and tax free cash sum option. New deferred quotation this year a year later is just pre-1988 GMP, no scheme pension or TFCS option. Sounds a bit odd, but could result from the scheme equalising GMPs. You'd need to ask the scheme direct on this point.

A GMP equalisation exercise won't result in the simple replacement of escalating excess with non-escalating GMP. For a start, pre-88 GMP isn't subject to equalisation in the first place! Maybe you're thinking about a (belated) implementation of a GMP reconciliation exercise..?

Thank you...I was indeed. Somehow GMP reconciliation and equalisation exercises had all blurred into one in my mind...!

xylophone

Technically GMP was never increased by the state before 2016 either...

Splitting hairs?

https://forums.moneysavingexpert.com/discussion/comment/60875313/#Comment_60875313

Letter from Scheme Administrator to male relative (Scheme NRA 60) reaching SPA ten years ago.....

Dear Mr ......

........,,,,,, Pension Fund

We refer to your pension paid by ....... Pension Fund.

We have now received confirmation from HMRC of the amount of GMP that is payable from your 65th birthday.

The GMP elements of your pension increase in payment at different rates to your main fund pension. We therefore detail below the revised split of your pension and the future increases that you will receive from the Fund.

Pre 1988 GMP £ xxx per annum No Increase from the Fund. Increase may be provided by the State and paid with your State pension.

Post 1988 GMP £yyy per annum Increase in line with CPI up to a maximum of 3% each year. Any increase in excess of 3% will be provided and paid by the State

Fund Excess Pension £zzz per annum In line with the Retail Price Index.



The SERPS scheme was introduced in 1978 - employers/employees paid additional NI contributions depending on salary to build up an additional state pension on top of the Basic State Pension.

However, in return for guaranteeing a pension that was at least as great as SERP, the employer would pay a lower rate of  NI (as would the employee).

This was the Guaranteed Minimum Pension. (The GMP scheme ended in 1997 with the introduction of a scheme reference test.)

The SERPS scheme was changed to SP2 in 2002.


 Back in 1978, as a sweetener to employers, the Government of the day undertook to index link the ASP (see below)  from GMP age 60 (F)/65 (M).

At the time, this was also State Pension Age.

In 1988, the Government of the day decided  that this promise was rather too expensive to keep and therefore  the law was changed to require  the Occupational Scheme to index link the  post 88 GMP up to 3% while the state would index link the balance.

At State Pension Age, the National Insurance Contributions Office  would calculate the additional pension  the individual would have earned between 6/4/78 and 5/4/88 and 6/4/88 and 5/4/97  had he not been contracted out. (Notional ASP).

From this  NICO would deduct the actual GMP built up through  the s32/occupational pension scheme between 1978 and 1997 - this was the COD - what  was left was the amount of additional state pension  (net ASP) accrued in that period.



It was not impossible for this to be a negative figure - this typically occurred where an employee had a deferred pension with GMP where the GMP had been revalued in deferment by so called "fixed rate" rather than 'full rate".

If the notional ASP calculated by NICO  was less than the actual GMP, ( COD greater than notional ASP) then there could be no increase in 88-97 Additional State Pension until one had caught up with the other.

Example of mechanism where net ASP was positive here

https://forums.moneysavingexpert.com/discussion/comment/61084659/#Comment_61084659

The introduction of the new "single tier" state pension 6/4/16 ended the GMP/ASP mechanism described above.

hyubh

xylophone said:

Technically GMP was never increased by the state before 2016 either...

Splitting hairs?

Well...

If the notional ASP calculated by NICO  was less than the actual GMP, ( COD greater than notional ASP) then there could be no increase in 88-97 Additional State Pension until one had caught up with the other.

Exactly - those hairs actually split quite easily, don't they? The OP implies a leaving date before 6/4/88. If we were to assume fixed rate revaluation, then that's a rate of 8.5%. At GPD, the revalued GMP is going to be well north of the revalued equivalent SERPS. (And yes, I appreciate the OP's full employment history is important here.)

Fernzy

Please forgive me for the delay responding to the many useful comments. I could not find the thread after I posted my initial comment. Thank you for your replies. 

It is still as clear as mud to me.

Joined the DB scheme in 01-Jul-1980 and left the scheme on 30-Sep-1985.

Preserved benefits on leaving were:

1) Scale pension of £820.27 (inc GMP)
a) 50% spouse’s pension
b) 3% pa compound escalation

2) (Pre-1988) GMP: £225.68
Fixed revaluation of 8.5%

Unclear about 

A) What date does GMP revaluation stop is it old state pension age of 65 or 66?

Does the 1/7% per week increase to GMP apply if retirement deferred to age 67? Is there a .gov link evidencing this?

C) Why do the scheme administrators insist that only the GMP which as at 01-Aug-23 they calculate to be £4,521.82 is payable. No scheme pension shown hence no commutation or escalation, but showing a higher spouse’s pension of 2/3.

xylophone

A) What date does GMP revaluation stop is it old state pension age of 65 or 66?

 Does the 1/7% per week increase to GMP apply if retirement deferred to age 67? Is there a .gov link evidencing this?

See

https://www.barnett-waddingham.co.uk/comment-insight/blog/what-is-a-gmp/

 https://www.gov.uk/guidance/provide-a-pension-for-your-scheme-member

C) Why do the scheme administrators insist that only the GMP which as at 01-Aug-23 they calculate to be £4,521.82 is payable. No scheme pension shown hence no commutation or escalation, but showing a higher spouse’s pension of 2/3.

I suspect "full franking".

See

https://expertpensions.co.uk/wp-content/uploads/2017/08/GMP-franking.pdf

Fernzy

Thank you xylophone very helpful
as always. 

Just received a reply from the scheme administrators who quote the following:

The step-up at age 65 does not apply to members retiring late in the xxx scheme.

Does this mean remark about the step up mean anything to anyone?

They once again have not explained the omission of my scheme pension from their quote but insist that I only get the pre-1988 GMP which has no escalation but he has quoted a 2/3 spouses pension!

From the links sent by Xylophone it would appear that I am protected by anti-franking and as I have have deferred taking my benefits should receive the increases on the pre-1988 GMP at the 1/7% rate per week for each full week. So do not understand the step up remark.