GMP question
Comments
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Does your friend have a GMP? When did they reach age 65?fly-catchers said:Since turning 65 my RM section C pension increases have changed. Pre 06/04/1988 hasn’t increased at all. And Post 05/04/1988 has gone up by 3% CPI which is the maximum it could have gone up by. And the rest of my pension went up by 5% RPI capped at that amount. My friend who also retired 65 and is in the earlier Section B pension has received the full 6.7% CPI across his entire pension. Even although the RMSPS give in their examples for both pension schemes the same rules over the GMP element. Just curious to why the pension schemes have been handled differently!Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!0 -
He reached 65 in February and had been paying into the pension from about 1977. And does have GMP.Marcon said:
Does your friend have a GMP? When did they reach age 65?fly-catchers said:Since turning 65 my RM section C pension increases have changed. Pre 06/04/1988 hasn’t increased at all. And Post 05/04/1988 has gone up by 3% CPI which is the maximum it could have gone up by. And the rest of my pension went up by 5% RPI capped at that amount. My friend who also retired 65 and is in the earlier Section B pension has received the full 6.7% CPI across his entire pension. Even although the RMSPS give in their examples for both pension schemes the same rules over the GMP element. Just curious to why the pension schemes have been handled differently!0 -
Do you subscribe to below where it seems increase was discussed?
https://www.royalmailchat.co.uk/community/viewtopic.php?t=11235217 Jan 2024 — In a nutshell the increases from 1/4/24 will be 6.7% for Section A/B members and 5% for Section C members as Max has said. Top.0 -
In March of each year, HM Treasury issues a Pension Increase (Review) Order.
The pensions increase is usually the equivalent of the Consumer Prices Index (CPI) for the 12 months ending September of the
preceding year.
CPI in September 2023 was 6.7% and RPI was 8.9%.
The RMSPS Scheme Rules require that Section A/B pensions in payment increase under the PIRO - therefore for the year
beginning 6/4/24, the increase applicable was 6.7%.
Section C members have their pension increased by the annual increase in the rate of the Retail Prices Index over the preceding
year, or 5%, whichever is lower.
Therefore the increase for Section C members was 5%.
Before the introduction of the New State Pension, members of both sections would have found that after they reached GMP age
(60 F/65(M), that part of the pension that represented pre 88 GMP was not increased by the scheme, the post 88 was increased
by the scheme by up to 3% CPI/RPI as appropriate and the balance by either PIRO or up to 5% RPI.
This was because there was a link between the old state pension and increases on GMP such that increases on pre 88 GMP and
anything over 3% on post 88 GMP were paid with the State Pension through an adjustment to pre 97 Additional State Pension.
See
https://www.royalmailsps.co.uk/faqs
https://www.royalmailsps.co.uk/im-receiving-my-pension/pension-increasesIn 2016 the government introduced the new State Pension. This simplified the State Pension system, but in doing so, it removed the mechanism for the State to pay indexation on the part of members’ pensions which is their GMP. This affected members who reached their State Pension Age from 6 April 2016 onwards.
An ‘interim solution’ (which was in place between 6 April 2016 and 5 April 2021) under which schemes indexed the whole of a member’s pension ensured that the government continued to meet the commitments made to members of public service pension schemes with a GMP element, including the RMSPS.
Following a consultation into Public Service Pensions: Guaranteed Minimum Pension indexation, the government decided to retain this interim solution as the long-term policy solution for public service pension schemes.
Your friend is a Section A/B member and he will reach SPA in the new scheme. Therefore the whole of his pension (including the GMP) increases each year under PIRO.
You are a Section C member and seem to have reached SPA only a couple of months ago. See below
https://www.royalmailsps.co.uk/faqs#gmpcSection C members (members who joined the Scheme between 1987 and 2008)
The increase applied to your pension will be based on the increases in the Retail Price Index (RPI) for the previous September up to a maximum of 5%. This year’s increase is 5%. The increase will take effect from 8 April 2024. If you retired during the year, your pension increases will be proportioned.
Increases and Guaranteed Minimum Pension (GMP)
Pre-88 GMP
If you reached SPA on or after 6 April 2016, the increase to the GMP element of your benefits built up before 6 April 1988 will be paid by the Scheme.
Post-88 GMP
If you reached SPA on or after 6 April 2016, the increases applied to this section of your pension will be the increase in the price index, up to a maximum of 3%. Any rise in the price index above 3% will not be paid.
The GMP increase for 2024 will be 3% and will be applied from 6 April 2024.
It would seem that the scheme should be paying an increase on your pre 88 GMP?
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The statutory increase on pre 1988 GMP is zero, so they technically are. Same as the fact they are paying 3% on the post 1988 GMP.xylophone said:In March of each year, HM Treasury issues a Pension Increase (Review) Order.
The pensions increase is usually the equivalent of the Consumer Prices Index (CPI) for the 12 months ending September of the
preceding year.
CPI in September 2023 was 6.7% and RPI was 8.9%.
The RMSPS Scheme Rules require that Section A/B pensions in payment increase under the PIRO - therefore for the year
beginning 6/4/24, the increase applicable was 6.7%.
Section C members have their pension increased by the annual increase in the rate of the Retail Prices Index over the preceding
year, or 5%, whichever is lower.
Therefore the increase for Section C members was 5%.
Before the introduction of the New State Pension, members of both sections would have found that after they reached GMP age
(60 F/65(M), that part of the pension that represented pre 88 GMP was not increased by the scheme, the post 88 was increased
by the scheme by up to 3% CPI/RPI as appropriate and the balance by either PIRO or up to 5% RPI.
This was because there was a link between the old state pension and increases on GMP such that increases on pre 88 GMP and
anything over 3% on post 88 GMP were paid with the State Pension through an adjustment to pre 97 Additional State Pension.
See
https://www.royalmailsps.co.uk/faqs
https://www.royalmailsps.co.uk/im-receiving-my-pension/pension-increasesIn 2016 the government introduced the new State Pension. This simplified the State Pension system, but in doing so, it removed the mechanism for the State to pay indexation on the part of members’ pensions which is their GMP. This affected members who reached their State Pension Age from 6 April 2016 onwards.
An ‘interim solution’ (which was in place between 6 April 2016 and 5 April 2021) under which schemes indexed the whole of a member’s pension ensured that the government continued to meet the commitments made to members of public service pension schemes with a GMP element, including the RMSPS.
Following a consultation into Public Service Pensions: Guaranteed Minimum Pension indexation, the government decided to retain this interim solution as the long-term policy solution for public service pension schemes.
Your friend is a Section A/B member and he will reach SPA in the new scheme. Therefore the whole of his pension (including the GMP) increases each year under PIRO.
You are a Section C member and seem to have reached SPA only a couple of months ago. See below
https://www.royalmailsps.co.uk/faqs#gmpcSection C members (members who joined the Scheme between 1987 and 2008)
The increase applied to your pension will be based on the increases in the Retail Price Index (RPI) for the previous September up to a maximum of 5%. This year’s increase is 5%. The increase will take effect from 8 April 2024. If you retired during the year, your pension increases will be proportioned.
Increases and Guaranteed Minimum Pension (GMP)
Pre-88 GMP
If you reached SPA on or after 6 April 2016, the increase to the GMP element of your benefits built up before 6 April 1988 will be paid by the Scheme.
Post-88 GMP
If you reached SPA on or after 6 April 2016, the increases applied to this section of your pension will be the increase in the price index, up to a maximum of 3%. Any rise in the price index above 3% will not be paid.
The GMP increase for 2024 will be 3% and will be applied from 6 April 2024.
It would seem that the scheme should be paying an increase on your pre 88 GMP?
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The statutory increase on pre 1988 GMP is zero, so they technically are. Same as the fact they are paying 3% on the post 1988 GMP.
Yes but surely the point being made in the Scheme Guidance above is that before the introduction of New State Pension, increases
on the pre 88 GMP were paid (for A/B and C members through the linking mechanism with pre 97 ASP).
Under the old dispensation, where NRA was 60 and a male scheme member took his scheme pension, up to
age 65, the whole of the pension would have been increased under scheme rules.
(It should be noted that when state pension age started to increase from 6/4/2010, certain schemes, notably the Public Service
Schemes, paid the increase on the whole of the pension until the member reached the increased SPA which particularly
benefited female members).
When a man reached age 65, (old state pension age for a male and still GMP age) his scheme pension would have been split out
into its component parts, pre 88 GMP/post 88 GMP/excess over GMP.
See https://forums.moneysavingexpert.com/discussion/comment/60875313/#Comment_60875313
His statement of benefits from DWP would show his pre 97 Additional State Pension and his contracted out deduction which
represents his GMP (pre 88 and (if applicable) post 88).
Let's take somebody who reached age 65 in this position. His scheme informs him
Pre 88 GMP £60.65/wk
Post 88 GMP £38.17/wk
Total GMP £98.82/wk
HIs DWP statement informs him that his pre 97 Additional State Pension is £98.82.
From this is deducted his GMP (as Contracted Out Deduction) so he is not entitled to any pre 97 Additional State Pension.
In September, CPI is calculated as 7% and this is the rate that will be applied to the pre 97 ASP figure shown on his DWP statement in
the following year.
£98.82 x 7% = £105.73
From this deduct £60.65 (pre 88 GMP which never changes) + £39.31 (post 88 GMP increased at 3% by scheme) = £99.96
£105.73 - £99.96 = £5.77.
Thus the pensioner receives £5.77 as pre 97 Additional State Pension, being an increase of 7% on his pre 88 GMP and 4% on his post
88 GMP.
This mechanism ended with the introduction of the new state pension.
If the members of Section C reaching SPA on or after 6/4/16 are not having any increase on pre 88 GMP paid by the scheme, then they are indeed receiving a rough deal?
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I turned 65 last year a year or so before my friend. So my GMP spitting up of my pension started a year ago. Both years the increase for my pre 88 part has been zero. With 3% for the post 88 part. And 5% for the rest. I did alert my friend as to what might happen to his pension increase this year so was a bit surprised when he got the full 6.7% for his entire pension. Even his 65 bit that he just started in February went up by 6.7% even although I had expected that to be pro rata for the first year. Mine went up by 1.25% last year when the pension increase was 5%. So it seems as if .section B do rather better than C in this respect!0
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So it seems as if .section B do rather better than C in this respect!Under the old state pension, when the male Section A/B members and Section C members reached age 65, (or possibly State Pension
Age if different) the Scheme ceased paying an increase on the whole of their pension at the rate specified in scheme rules relating
to their section as they had done from when the pension came into payment at age 60 (or earlier).
The state would have paid together with the Basic State Pension (as pre 97 Additional State Pension) CPI (RPI) increase on the pre
88 SP, and CPI (RPI) less 3% on the post 88 GMP. The mechanism is explained above.
From then on, the Pension Scheme paid no increase on pre 88 GMP, up to 3% on post 88 GMP and whatever scheme rules said
on the excess over GMP.
In the case of Section A/B members, Scheme Rules stated that the excess over GMP increased by PIRO, ie uncapped CPI
(formerly RPI) the previous September, whereas for Section C members the excess over GMP increased at RPI capped at 5%.
When the new state pension was introduced, the mechanism for paying increases to GMP through the State Pension was lost.
The Government was very wary of upsetting the members of Public Service Pension Schemes (or their unions perhaps) and so
decided that these Schemes must meet the full cost of indexing the GMP.
In the case of Section A/B, this meant that the whole of the pension (excess plus GMP) both before and after age 65 would
increase under Scheme Rules (uncapped CPI).
Section C members reaching SPA post 2016 seem to have received a raw deal in so far as despite what is stated, they still
receive no increase on pre 88 GMP and only up to 3% on post 88 and then capped RPI on the excess.
It is not clear to me why they are not receiving at least capped RPI on the whole of the pension.1
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