Minimum Guaranteed Pension

Dunwunderin

Hi,
Have recently retired with an occupational pension and with State Pension.

The occupational pension like the state pension is suppossed to be index linked (RPI index)

Recently have been concerned about the concept of a Minimum Guaranteed Pension as I was contracted out of Serps.

How pays this? How is it index linked? How much is it?

I have heard that there may be 2 types( before 1988 and after 1988) but it all seems a bit confusing.

Does anybody have ideas?

Regards

jonathon_hart

Hi. I hope I get this right been a while since I had to explain this...

Guaranteeed Minimum Pension (GMP) is what you get in place of SERPS for the period between 1978 (I think...) and 1997 (when it got replaced by Protected Rights/ the reference scheme test)

What it means is that your occupational scheme benefits at your State Pension age must be at least the amount of your GMP (if it is lower then the company would either prevent you from retiring if you were before your normal retirement age or have to top up your pension)

It is paid as part of your occupational scheme pension.

The difference between your GMP benefit and the "normal" scheme benefits (the difference between your total pension and the GMP) is that they will increase in payment at different rates.

You are correct in that GMP is divided up into pre and post 88 GMP. These again are separated by different rates of increase in payment.

Unfortunately I can't currently remember what the various increase rates are... I'll try and find them and post them (although they should also be listed in your retirement letter)

Jonathon

Dunwunderin

Hi,
Many thanks for your comments.

a more detailed study of my Pension Provider's letter shows following:

Pension indexes as follows :
GMP pre 1988 No increase!
GMP post 1988 Max 3.0%
Pension Balance Unlimited RPI Increase

Seems crazy. Who pays GMP pre 1988 if not the pension provider?
The total increase in this year's pension has been onl 2.0% instead of a RPI of 3.9%.(Dec. 2007)

Does this mean that part of my pension is NOT index Linked?

Regards

Dunwunderin

Hi,
Many thanks for your comments.

a more detailed study of my Pension Provider's letter shows following:

Pension indexes as follows :
GMP pre 1988 No increase!
GMP post 1988 Max 3.0%
Pension Balance Unlimited RPI Increase

Seems crazy. Who pays GMP pre 1988 if not the pension provider?
The total increase in this year's pension has been onl 2.0% instead of a RPI of 3.9%.(Dec. 2007)

Does this mean that part of my pension is NOT index Linked?

Regards

jonathon_hart

Dunwunderin wrote: »

Pension Balance Unlimited RPI Increase

Seems crazy. Who pays GMP pre 1988 if not the pension provider?
The total increase in this year's pension has been onl 2.0% instead of a RPI of 3.9%.(Dec. 2007)

Unlimited RPI is rare - normally there is a cap of at best 5% (some are even 2.5% nowadays). The GMP increase rates are set by the government in legislation. Who actually pays the increase is sometimes confusing as in some cases the government pays some or all in others it is the scheme. Not that who pays the increase will affect the amount you get.

Dunwunderin wrote: »

Does this mean that part of my pension is NOT index Linked?

Yes.

Jonathon

fg22

No! the GMP part of your pension is inflation linked.
The scheme will not pay any increases on your pre-88 GMP or for inflation over 3% on your post-88 GMP, however, this increase will be added to your state pension.
see http://www.pensionsadvisoryservice.org.uk/Pension_Rights/Pension_Increases/ for details.

If you started your pension partway through the year then you may only receive a proportion of the full RPI increase and this may also explain why it only increased by 2%.

EdInvestor

Some people get a rude shock I believe when they reach state pension age and discover that instead of getting an extra amount, their occupational pension is reduced by thre amount of state pension they then receive, so they are no better off.

How would a pensioner learn more about such a possibility?

Retired_I.F.A.

EdInvestor wrote: »

Some people get a rude shock I believe when they reach state pension age and discover that instead of getting an extra amount, their occupational pension is reduced by thre amount of state pension they then receive, so they are no better off.

How would a pensioner learn more about such a possibility?

Dont you mean why would a pensioner forget such a simple fact about membership of a contracted out scheme?

Dunwunderin

Hi,
I have done more research with my Works Pension Provider and State Pension provider and have found some interesting and unexpected results:

1. the GMP is paid by the Works pension people on behalf of the State but the indexing to full RPI is paid as an additional pension into your State pension!

2. Post 1988 GMP is indexed by Works to maximum of 3%.

£. Pension balance is fully indexed unlimited by Works

So my pension is fully indexed linked to RPI but as my accummulated additional pension is less than my Workls COD the GMP index payment is disappears into a State blackhole. This will correct itself in about 10 years time when my AP rises to COD level ( if I am spared!)

This must be the ultimate Gordon Brown Stealth Tax!

I am sure this situation applies to other pensioners but they don't realize it!

Nett result is that I will receive only about half of the promised index increase in my works pension for many years!

I would be interested to know experiences of other works pensioners!

fg22

Dunwunderin wrote: »

This must be the ultimate Gordon Brown Stealth Tax!

How? The state is giving you money in the form of increases from state retirement age.

Dunwunderin wrote: »

Nett result is that I will receive only about half of the promised index increase in my works pension for many years!

The increases are exactly as promised by the scheme literature.

Dunwunderin

Yes the state is paying the GMP pre 1988 increase into my state pension but the increase is being absorbed by the COD amount! So the nett affect is a zero incease!