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GMP confusion

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hogweedhogweed Forumite
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Well, that day which was always impossibly far in the future is now only weeks away – ie my 65th birthday. I’ve received some literature from AEGON concerning my pension, and I’d appreciate some kindly advice :o


It concerns what I think is called a Section 32 Buyout? I left employment with British Telecom in 1988, after nearly 8 years’ service. My BT pension was frozen (don’t know if that’s the correct term, but I expect you’ll know what I mean).


A few years later, I was approached by a local IFA (friend of a friend), who assured me my money was wasted there, and that I’d have vastly more to retire on if I transferred it to a scheme with Scottish Equitable. Years later, when I got better educated, I came to doubt the wisdom of this advice, and ended up with the Financial Ombudsman, who said I didn’t have a case for complaint. Just telling you that up front in case I get a flood of comments asking why I did it etc!


Anyway, we are where we are now. The pension fund, instead of paving my driveway with gold, spectacularly failed to accumulate anywhere enough to even provide a pension like the one it replaced. However, they had to provide a guaranteed minimum (GMP) which, I understand, is roughly equivalent to the original BT one. This is where the confusion begins…


The GMP is as follows:


Benefits Annual
Accrued Pension Escalation

Pre 6/4/88 £5058 Level
Post 6/4/88 £656 RIP cap 3%


Would anyone care to explain to me why it’s in 2 portions, and why the greater part doesn't increase annually? I’m probably being very dim here, but I am when it comes to figures I’m afraid :eek:



Thanks :cool:
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Replies

  • ffacoffipawbffacoffipawb Forumite
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    hogweed wrote: »
    Well, that day which was always impossibly far in the future is now only weeks away – ie my 65th birthday. I’ve received some literature from AEGON concerning my pension, and I’d appreciate some kindly advice :o


    It concerns what I think is called a Section 32 Buyout? I left employment with British Telecom in 1988, after nearly 8 years’ service. My BT pension was frozen (don’t know if that’s the correct term, but I expect you’ll know what I mean).


    A few years later, I was approached by a local IFA (friend of a friend), who assured me my money was wasted there, and that I’d have vastly more to retire on if I transferred it to a scheme with Scottish Equitable. Years later, when I got better educated, I came to doubt the wisdom of this advice, and ended up with the Financial Ombudsman, who said I didn’t have a case for complaint. Just telling you that up front in case I get a flood of comments asking why I did it etc!


    Anyway, we are where we are now. The pension fund, instead of paving my driveway with gold, spectacularly failed to accumulate anywhere enough to even provide a pension like the one it replaced. However, they had to provide a guaranteed minimum (GMP) which, I understand, is roughly equivalent to the original BT one. This is where the confusion begins…


    The GMP is as follows:


    Benefits Annual
    Accrued Pension Escalation

    Pre 6/4/88 £5058 Level
    Post 6/4/88 £656 RIP cap 3%


    Would anyone care to explain to me why it’s in 2 portions, and why the greater part doesn't increase annually? I’m probably being very dim here, but I am when it comes to figures I’m afraid :eek:



    Thanks :cool:

    Pre April 1988 GMP does not increase in payment. Post April 1988 increases in payment at 3%.

    As you left in 1988 the post 1988 GMP is going to be at most 8 months worth so will be about 1/12 of the total GMP which looks about right.
    Retired Cymro

    🏴󠁧󠁢󠁷󠁬󠁳󠁿 Cymru am Byth 🏴󠁧󠁢󠁷󠁬󠁳󠁿
  • hogweedhogweed Forumite
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    Pre April 1988 GMP does not increase in payment. Post April 1988 increases in payment at 3%.

    As you left in 1988 the post 1988 GMP is going to be at most 8 months worth so will be about 1/12 of the total GMP which looks about right.


    Thanks, much appreciated. I assume this is a government thing, rather than an AEGON decision... don't suppose you know the rationale behind something which seems a little unfair, as I believe the original BT pension which was transferred was all index linked?
  • edited 14 October 2019 at 7:11PM
    xylophonexylophone Forumite
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    edited 14 October 2019 at 7:11PM
    When you were employed by BT, the pension scheme was "contracted out" of the additional state pension scheme.

    Pre 1997, this meant that the scheme had to guarantee to provide a pension at least as great as the ASP foregone. This was the GMP.

    It was not however the whole of the pension (although in the case of early leavers it might have represented a very large part of it).

    Originally the govt. agreed to index link the whole of the GMP once it came into payment (age 60 F/65M) through the mechanism of the ( old )state pension - this changed post 88 so that the scheme had not to index link pre 88 GMP but 88 - 97 GMP up to 3%. The "excess" was index linked under scheme rules.

    When you transferred your pension into a S32, the policy provider had to continue to protect that GMP - see

    https://www.financialadvice.net/s32_buy_out_plan/zone/1288
  • hogweedhogweed Forumite
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    xylophone wrote: »


    Thanks :D I've read it a couple of times, but the part of the brain needed to understand it seems to be an optional extra that wasn't fitted to me :o


    Never mind, nothing I can do about it anyway... I was just trying to cross the i's and dot the t's...
  • edited 13 October 2019 at 7:19PM
    DairyQueenDairyQueen Forumite
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    edited 13 October 2019 at 7:19PM
    Very simply...
    The GMP is the minimum annual pension that Aegon must provide to replace what you would have received (according to government calculations) if you had not contracted out of the state second pension during that period of employment.

    Prior to the introduction of the new state pension (and the end of contracting out) the government provided the bulk of the indexation on these 'GMP' pensions. The additional indexation amount was previously paid as an addition to the state pension.

    However, the great GMP stitch-up took place when contracting out ceased. The government broke its undertaking to provide the shortfall on indexation on GMP pensions. The net result is that schemes like Aegon must index-link post-88 GMP only up to 3% (under government rules) but have no obligation to index link pre 1988 GMP at all.

    The net result is that, once in payment, pre 1988 GMP pensions are no longer index linked. Aegon have not welched on the deal, the government has.

    Unsurprisingly, the government made no attempt to publicise this in the lead-up to the pension reforms. It's an outrage.

    If it helps...

    If you had stayed with BT then they would also have no obligation to make up the shortfall in indexation.

    My OH also has an S32 buy-out, all accrued pre-1988. The good news is that, whilst not in payment, it has increased at an annual rate way beyond inflation. This is because of the government mandated revaluation rates that applied to schemes back then. However, the bad news is that, like you, his pension will never increase by a single penny once in payment.

    The government's withdrawal of indexation on GMP was one reason why I was approved for a transfer out of my final salary scheme.

    I believe that indexation on GMP for those who retired under the old rules has also ceased. Most people would not have understood that, from 2016, they will be receiving less state pension than they would have otherwise received. The impact will compound over the remainder of their lives.
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  • xylophonexylophone Forumite
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    I believe that indexation on GMP for those who retired under the old rules has also ceased. Most people would not have understood that, from 2016, they will be receiving less state pension than they would have otherwise received.

    No, if you are receiving your State pension under the old rules, the old indexation system still applies.

    See post 12 here

    https://forums.moneysavingexpert.com/showthread.php?t=4532605

    However, even under the old rules, some occupational pensioners have been done down.

    The Government changed the indexation on Additional State Pension to CPI rather than RPI - RPI is nearly always higher.
  • DairyQueenDairyQueen Forumite
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    xylophone wrote: »
    No, if you are receiving your State pension under the old rules, the old indexation system still applies.

    See post 12 here

    https://forums.moneysavingexpert.com/showthread.php?t=4532605

    However, even under the old rules, some occupational pensioners have been done down.

    The Government changed the indexation on Additional State Pension to CPI rather than RPI - RPI is nearly always higher.
    Thanks for correcting me. I suspect that what you don't know about GMP can be written on the back of a postage stamp. :)

    So, those who retired under the old rules still receive full GMP indexation but those who retire under the new SP are out of luck?
  • xylophonexylophone Forumite
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    So, those who retired under the old rules still receive full GMP indexation but those who retire under the new SP are out of luck?

    Well, from the previous link, you will see how indexing works on the old state pension (but you will also note the situation of those who ended up with a COD greater than their ASP).

    With regard to the new state pension, I think we've already been in discussion about how the "starting amount" was calculated.

    If you come under the NSP, then all of your pension up to a full NSP is index linked (currently) under the triple lock - any amount over is a "protected payment" and is index linked under CPI.

    Clearly, there is some ASP within the NSP and to the extent that this is the case, under the triple lock the pensioner is getting at least CPI or better.

    The same comment as above applies as regards CPI/RPI though!

    Those worst affected by the change to the NSP were those occupational pensioners with a GMP who were very close to SPA at the time of the changeover.

    They may well have had high COD/COPE which meant that they received much less than a full NSP with no chance to improve their starting amounts.

    They would then miss out on indexation of pre 88 GMP altogether and would receive only up to 3% on post 88 GMP through their occupational schemes.

    See https://www.nao.org.uk/wp-content/uploads/2016/03/The-impact-of-state-pension-reforms-on-people-with-Guaranteed-Minimum-Pension.pdf

    Those in receipt of Public Service Scheme pensions have been protected from this (at least up to those retiring in 2021).

    See https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN04956
  • hogweedhogweed Forumite
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    Thanks people – that’s very useful. I knew I was being stitched – just no necessarily by whom.


    Worse than that – I’ve just been told by HMRC or whatever they call themselves that, despite my having 45 years’ paid up NI contributions, I have to give them another something like £1500 to get the full state pension.


    The only consolation is that it’s a long time since anybody even bothered to try and maintain the illusion of fairness in our society, so I don’t expect it :(
  • IanStIanSt Forumite
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    hogweed wrote: »
    Worse than that – I’ve just been told by HMRC or whatever they call themselves that, despite my having 45 years’ paid up NI contributions, I have to give them another something like £1500 to get the full state pension.

    I assume many of those 45 years were when you were in a contracted out pension scheme, so you were paying less in national insurance contributions than someone on the same pay who was not.
    The only consolation is that it’s a long time since anybody even bothered to try and maintain the illusion of fairness in our society, so I don’t expect it

    I take it that you would not count it as fair if someone paying a smaller amount of national insurance got the same benefits as someone paying the full amount.
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