Bit baffled by Guaranteed Minimum Pension

kuepper wrote: »

I realised this year that my personal local govt pension annual increase was less than the 3% quoted. When I queried this I was told the balance to make it up to 3% was paid by the state as part of my state pension and this had been part of the 2016 changes.

Other way round - you reached state pension age before the 2016 changes, so your pension follows pre-2016 rules.

The old state pension (applicable to you) involved two parts, basic and additional. The former is unaffected by 'contracting out' (in your case by being a member of a contracted-out final salary scheme), the latter is, since the idea of it was to provide a salary-related pension for people who didn't have one otherwise.

However, things were (are) complicated by it not simply being the case that you either had an occupational pension or earned an additional state pension -

- Between 1978 and 1997, contracted-out schemes like the LGPS had to provide a 'GMP' that (sort of) directly corresponded to the additional state pension ('SERPS') you would have had, had you not been a member. In exchange, a lower rate of National Insurance was applicable.

- GMP earned on membership ('service') between 1978 and 1988, however, is not index linked in payment by the scheme. Instead, your state pension each year is calculated as if you had been contracted into the additional state pension, before the GMP the scheme must pay is taken off; the net figure is then added to your basic state pension.

- GMP earned on service between 1988 and 1997 *is* index linked in payment by the scheme, but only up to 3%. If official 'pensions increase' is higher, then a similar situation to pre-88 GMP arises, i.e. your state pension is calculated as if you had been contracted in, then your GMP (including any statutory increases paid by the scheme) is netted off.

Things get even more complicated with most private sector final salary schemes, partly because the pension increase rates on their 'excess' (i.e. non-GMP) pension usually isn't the official 'pensions increase' that SERPS and public sector pensions share, and partly because they are free to chose a 'fixed rate' revaluation method for GMP that means the value of it on reaching state pension age can be quite different to the SERPS the member would have had on contracting in. However, the same principle outlined above applies.

hyubh wrote: »

Things get even more complicated with most private sector final salary schemes ...

When I discussed one subtlety with the office of my principal FS pension, at one point the clerk said "and we have to guess that figure because we don't know it". If I understood her correctly (if!) their guess probably erred in my favour so we ended the call on the best of terms. The amount involved in the guess wasn't large and the only way I could have checked it properly was by using bits of paper that, if they had ever existed, must have been lost in house moves decades ago. So there we are: I'm numerate, the clerk was on the ball and helpful, and still a small component of my pension is based on a guess.

It took my wife's FS scheme four different attempts to calculate her pension; we have no way of knowing whether the last calculation was right.

It's all pretty unsatisfactory.

kuepper wrote: »

My 2018 state pension notice shows:

basic state pension of £125.95
Pre 97 Additional State Pension £A
less Contracted-Out Deduction (COD) £B

Total payable (£A-£B) £C
Post 97 additional State pension £D
Graduated retirement benefit £E

The amount each week is £F (ie £125.95+£C+£D+£E)

So which figure is supposed to be /include the amount paid to make up my local govt pension to the amount it would have been if I had received the 3% increase?

What results from the pre-97 ASP less the COD.

kuepper wrote: »

[What results from the pre-97 ASP less the COD

the princely sum of £4

Sorry, I meant 'the answer to your question is, "What results from the pre-97 ASP less the COD"', not 'What results from the pre-97 ASP less the COD?'. That said, how does this marry up to the difference between your LGPS pension for March 2018 x 1.03 vs. your actual LGPS pension for May 2018? (Ignore April because that month is a bit fiddly - LGPS excess and GMP increases come into affect on a different days.)

And in connection with the above, and using my hypothetical figure of 4% CPI , your scheme pension statement would show no increase on pre 88 GMP, 3% on post 88 GMP and 4% on the excess.