Minimum Guaranteed Pension

Dunwunderin

Hi,
Many thanks for your input--we seem to have had a breakthrough!

I am 66 and have been reviewing my works Pension Annual Increase statement where I note 2% instead of the expected 3.9% RPI for last year.
My AP has increased by RPI by the State. My COD has been increasing at 7% per annum but seems to have stopped since I turned 65!

I am still concerned about the apparent lack of nett gain to my Basic Pension until my AP exceedes the COD.

Debt_Free_Chick

Dunwunderin wrote: »

Hi,
Many thanks for your input--we seem to have had a breakthrough!

I am 66 and have been reviewing my works Pension Annual Increase statement where I note 2% instead of the expected 3.9% RPI for last year.
My AP has increased by RPI by the State. My COD has been increasing at 7% per annum but seems to have stopped since I turned 65!

I am still concerned about the apparent lack of nett gain to my Basic Pension until my AP exceedes the COD.

That 7% increase to your COD was more than what SERPS entitled you to. So the reason why your AP will not increase is that, effectively, you've already had those increases, when the 7% increase exceeded RPI.

I'm not sure I've made that clear, so let me know and I'll try again

Dunwunderin

Hi,
Sorry--Still can't understand the logic!
Talked to my local State Pensions Office who were unable to explain except to say that it must be someting to do with my Scheme being too generous! They sent a State Pensions hand book which states the following:

" Yours SERPS entitlement is recalculated each year to cover inflation.
Once the additional State Pension is more than your GMP or COD the difference will be paid with your State pension"

So my condition seems to a recognised fact. It will take me about 7/10 years to receive any additional state pension.

I suspect it is a fairly common condition but is masked by other annual increases and changes in tax coding happening at the start of the new tax year Most people just look at the increased bottom line of pension increases and don't look bother to check.

Now I have to find out why there is big a discrepancy between my AP and COD.
I would have thought that the ideal situation would be AP=COD at State Retirement age to give neither benefit or loss to the Scheme member.

Debt_Free_Chick

Dunwunderin wrote: »

I would have thought that the ideal situation would be AP=COD at State Retirement age to give neither benefit or loss to the Scheme member.

Yes it would be.

But your COD is bigger than your AP. So, you're getting more now .... but it will level out over the next few years.

Dunwunderin

Hi,

Many thanks for all your comments.

I will try to find out from central Stste Pension Headquarters why there is such an imbalance between AP and COD!

Retired_I.F.A.

The answer is above it'd just that the penny has not dropped for you yet.

Lets see if it does with this wording...

When you left the employ of the company with the final salary scheme it had to give you a retained benefit commonly called a frozen or a preserved pension, and within that you had to have a fixed future revaluation applied to the GMP element (the future being the preserved pension at the date of leaving till NRD at 65) Had you not left the GMP element would have increased but not by a fixed percentage each year) Now you've passed 65 the GMP after having the fixed percentage revaluation added to it now exceeds what it would have been had you stayed in the scheme as an employed member. So from 65 onwards it wont be revalued but it'll be payable and will escalate annually in payment, but until the serps equivelent exceeds your gmp you wont see any escalation.

Got it?

Dunwunderin

Retired_I.F.A. wrote: »

The answer is above it'd just that the penny has not dropped for you yet.

Lets see if it does with this wording...

When you left the employ of the company with the final salary scheme it had to give you a retained benefit commonly called a frozen or a preserved pension, and within that you had to have a fixed future revaluation applied to the GMP element (the future being the preserved pension at the date of leaving till NRD at 65) Had you not left the GMP element would have increased but not by a fixed percentage each year) Now you've passed 65 the GMP after having the fixed percentage revaluation added to it now exceeds what it would have been had you stayed in the scheme as an employed member. So from 65 onwards it wont be revalued but it'll be payable and will escalate annually in payment, but until the serps equivelent exceeds your gmp you wont see any escalation.

Got it?

yes the penny has dropped as to the mechanisn of whats happening post 65.

However, I seemed to be penalised as before 65 ALL by Scheme was RPI indexed and post 65 all but £4400 is index linked. I will not see any gain on this sum until my AP exceeds this amount in the distant future.
I can't see how this situation can be described as a " bonus".

Debt_Free_Chick

Dunwunderin wrote: »

yes the penny has dropped as to the mechanisn of whats happening post 65.

However, I seemed to be penalised as before 65 ALL by Scheme was RPI indexed and post 65 all but £4400 is index linked. I will not see any gain on this sum until my AP exceeds this amount in the distant future.
I can't see how this situation can be described as a " bonus".

If you didn't have your GMP, your pension would be £4400 lower now. You would then have all your state pension index-linked, but you'd be playing "catch up" until those increases amounted to an extra £4400.

In effect, you are getting paid £4400 in advance and repaying it by having lower increases on your state pension, until you catch up.

Dunwunderin

Many thanks again. I will attempt to find out why I have such a great AP/COD imbalance at State Pension HQ!

Regards to all.

Pixieboy

Hello, you haven't said whether this is a public sector pension. If it is, then I would have expected your total pension (including GMP) to have received the full RPI increase as your scheme administrator should have been advised by NI Contracted Out Employment Group that your AP is less than your GMP.
The following link to a word document on the HM Treasury site gives further details in Annex H.
http://www.hm-treasury.gov.uk./media/7/A/OCOP_pensions_increase.doc#_MINISTERIAL_DIRECTION_–
Obviously if yours is not a public sector pension then the rules may be different for your scheme, but thought I would mention just in case.