Deferred Pension – Guaranteed Minimum Pension

MrChips

Section 148 orders apply for relevant tax years, so the 213.3% increase would apply as long as you hit GMP age between 6 April 2009 and 5 April 2010.

Your scheme will be designed to give you a promise of a percentage of your final salary for each year (and part year) of service. If the scheme is contracted out (as yours was), they also promise to substitute some of your SERPS entitlement for GMP, with the Rules about GMP being decided mostly by the Government (e.g. how much GMP to give you, when it can be paid from etc). The GMP will replace a like for like amount of scheme pension so the overall amount is as promised (e.g. 10/60 x final salary after 10 years of service). So if you accrued £5000 in the scheme at date of leaving, and NICO (the Government agency which deals with contracting out) says the scheme has to pay you £1000 of GMP, you will have £4000 of scheme pension and £1000 of GMP.

If you leave before retiring, preservation requirements mean that your pension is calculated as at date of leaving and then the various components (GMP, and non GMP) are separately revalued until you retire. The Rules on this revaluation were changed in the mid 80s to be more generous to members. You say you left in September 1986, in that case all your GMP must be revalued between this date and your GMP age, while any pension in excess of GMP earned after 1 January 1985 must also be revalued in line with RPI by the time you retire (although your scheme may revalue all of it if it is more generous than this). The scheme has a few options as to how to revalue your GMP but you say it has chosen s148 orders (which is effectively revaluation in line with national average earnings).

If you retire before GMP age (65 for men, 60 for women), then what most schemes do is to pay you what ever each tranche of pension had revalued to by that point. Technically, your GMP tranche isn't actually GMP until you hit GMP age and so it will usually be paid as normal pension with the same increases that the non GMP receives. Then when you reach GMP age, your GMP will kick in.

The statutory minimum which schemes must pay at GMP age is the value of your GMP revalued to GMP age, plus the value of your non-GMP pension at normal retirement age, although your pension can’t be reduced below its current level either. In practice a lot of schemes pay this minimum. Therefore depending on the balance of your GMP and non-GMP pension you with either see no change to the overall level, or an increase when you hit GMP age.

If you post some figures, I might be able to come up with some sort of estimate (although I don’t know the Rules of your scheme so it will just be an estimate).

Regarding what is paid by the scheme and what by the government, you have misunderstood. The revaluation before retirement will be met by the scheme. Increases once in payment will be met by the government.

GMP is very fiddly so you might be best asking the scheme administrators for some precise figures if you want to know for sure.

babababor

Many thanks for the further info.

I have to be hopeful that my GMP which will be revalued by 213%, will be paid in addition to my non GMP pension. I will enquire on this aspect, although to date my previous enquiries about revaluation amounts were met with non-commital answers.

Since my former employer was a major UK insurance group, and they have always been generous in annual increases I can perhaps hope that I will get a pebsion increase at 65 of some £2000.

Thank you for your excellent help

babababor

Further to my recent posts on the subject or revaluing GMP's I have now had definitive info from my former employers.

Basically they state that the GMP will be revalued when I am 65, but if the revalued amount is less than my total pension, I will receive no increase. My former employer will increase my non-GMP pension annually but not the pre '88 GMP element. All increases on Pre 1988 GMP's will be paid by the state along with my state pension.

My new question is:- Will the annual increases by the state (RPI) be on the newly revalued GMP, or the original one?

Any info please

Thanks

MrChips

Sorry for delayed response.

Increases will be applied to the newly revalued GMP.