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  • FIRST POST
    • hogweed
    • By hogweed 13th Oct 19, 4:37 PM
    • 97Posts
    • 16Thanks
    hogweed
    GMP confusion
    • #1
    • 13th Oct 19, 4:37 PM
    GMP confusion 13th Oct 19 at 4:37 PM
    Well, that day which was always impossibly far in the future is now only weeks away Ė ie my 65th birthday. Iíve received some literature from AEGON concerning my pension, and Iíd appreciate some kindly advice


    It concerns what I think is called a Section 32 Buyout? I left employment with British Telecom in 1988, after nearly 8 yearsí service. My BT pension was frozen (donít know if thatís the correct term, but I expect youíll 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 Iíd 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 didnít 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 beginsÖ


    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 itís in 2 portions, and why the greater part doesn't increase annually? Iím probably being very dim here, but I am when it comes to figures Iím afraid



    Thanks
Page 2
    • xylophone
    • By xylophone 14th Oct 19, 6:15 PM
    • 31,697 Posts
    • 19,658 Thanks
    xylophone
    So, in the most extreme example, those who were very close to SPA when the nSP was introduced, and were contracted out throughout their working lives (and were not members of public schemes), will not receive indexation (or full indexation) on their equivalent of ASP (i.e. the GMP).
    Yes indeed (as acknowledged in the NAO report linked in my previous)

    13 The impact of new state pension reforms on people with Guaranteed Minimum Pensions will vary widely. The type of person who will do comparatively worse under the reforms is someone who has spent long periods in a contracted-out pension scheme and is close to retirement on 6 April 2016, so has little time to build up additional entitlement to new state pension. The Department estimates that 180,000 people who will reach state pension age in 2016-17 will have Guaranteed Minimum Pensions from before 1988. The amount by which people will be affected depends on their specific employment history. The Department’s modelling forecasts that 50,000 of these people will be worse off in 2017-18 as a result of the introduction of new state pension (paragraphs 3.13 to 3.17).

    However, those who were contracted-in for the same period (and are the same age) will receive triple lock up to the max nSP and then CPI on the amount above that?
    Yes.

    This transition period is a minefield.
    Yes.......
    • hyubh
    • By hyubh 14th Oct 19, 6:24 PM
    • 2,619 Posts
    • 2,087 Thanks
    hyubh
    So, in the most extreme example, those who were very close to SPA when the nSP was introduced, and were contracted out throughout their working lives (and were not members of public schemes), will not receive indexation (or full indexation) on their equivalent of ASP (i.e. the GMP).
    Originally posted by DairyQueen
    Most of these people wouldn't have received it for a while anyway because their revalued GMP at GMP age was higher than the equivalent revalued SERPS...
    • xylophone
    • By xylophone 14th Oct 19, 7:16 PM
    • 31,697 Posts
    • 19,658 Thanks
    xylophone
    Most of these people
    The people who would be affected in this way would be those whose pensions had been deferred and subject to "Fixed Rate Revaluation".

    See PDF linked here
    https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN02674
    • hyubh
    • By hyubh 14th Oct 19, 7:41 PM
    • 2,619 Posts
    • 2,087 Thanks
    hyubh
    The people who would be affected in this way would be those whose pensions had been deferred and subject to "Fixed Rate Revaluation".
    Originally posted by xylophone
    Yes. And while BT (getting back to the OP) doesn't, it has a fully public sector-style treatment of GMP for the majority of its membership (sections A and B), including a mirroring of the 'temporary' arrangement for individuals who are currently reaching SPA (this is a consequence of the rules for sections A and B saying pension increases mirror the civil service scheme).

    Is the OP in section C I wonder...?
    • xylophone
    • By xylophone 14th Oct 19, 8:00 PM
    • 31,697 Posts
    • 19,658 Thanks
    xylophone
    Is the OP in section C I wonder...?
    He left BT back in 1988 and later transferred his deferred BT pension into a S32.
    • hyubh
    • By hyubh 14th Oct 19, 8:12 PM
    • 2,619 Posts
    • 2,087 Thanks
    hyubh
    He left BT back in 1988 and later transferred his deferred BT pension into a S32.
    Originally posted by xylophone
    Doh, yes. So he lost the mirroring of PCSPS increases...?
    • xylophone
    • By xylophone 14th Oct 19, 8:22 PM
    • 31,697 Posts
    • 19,658 Thanks
    xylophone
    Doh, yes. So he lost the mirroring of PCSPS increases...?
    Indeed - transferring out may have been even unwiser than he supposed.

    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%






    He also had a relatively high COPE

    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.
    Last edited by xylophone; 14-10-2019 at 8:42 PM. Reason: Add bold
    • Billopp
    • By Billopp 20th Oct 19, 1:04 PM
    • 39 Posts
    • 12 Thanks
    Billopp
    DW guilty of Maladministration regarding GMP indexation
    High Dairy Queen,

    I thought I would keep you up to-date regarding GMP indexation . Two friends of mine have had a case with the Parliamentary Ombudsman against the DWP regarding not been told by them that they would no longer receive GMP indexation via the state pension calculation as promised in all DWP booklets and all occupational pension scheme booklets. They won their cases and on the 29 October the Parliamentary Ombudsman said they DWP were guilty of maladministration. This has taken four years to come to this conclusion.

    Attached are some paragraphs from their report.

    65. ln order to remedy the injustice we have identified that resulted from the DWPis
    maladministration, we recommend that the DWP should:

    a) Within one month of this report, apologise to Mr ? for the injustice
    (frustration and inconvenience) their actions have caused him;
    b) Within one month of this report the DWP shoutd pay Mr K !!!!in
    recognition of the injustice suffered;
    c) Within three months of this report, review and report back on to us on the
    learning from this investigation, including action being taken to ensure
    that affected individuals receive appropriate communication from the
    DWP about their state pensions. ln particular, the DWP should ensure that
    their literature clearly and appropriately references that some
    individuals, who have large GMPs and reach State Pension Age in the early
    years of the new State Pension, may be negatively affected by the
    changes. The DWP should advise individuals to check their circumstances,
    and should provide instructions for how to do this;
    d) Within three months of this report, review and report back about how
    other individuals who believe they have suffered an injustice as a resut of
    the maladministration we have found can raise any concerns with the DWP
    and have them considered; and

    e) Consider, and report back to us, whether this report and their response to
    our recommendations should be communicated to other interested parties
    such as the Chair of the Work and Pensions Select Committee.

    Notice the Ombudsman only said recommends the DWP should do it an did not say they had to.

    My friends are happy that the DWP are now guilty of maladministration but are not happy with the rest of the report because the Ombudsman has refused to look into why it happened or find out what Parliament were told about the loss of GMP paid via the state pension. From our researches we have not been able to find anything so are now wondering if the law was actually changed and if so have the DWP stopped doing the GMP calculation without the authority of Parliament .

    Possibly some of you can help us and tell me if you ever found any information about loss of GMP indexation being mentioned in DWP/Government publications before the New State Pension became law in May 2014.
    • Billopp
    • By Billopp 20th Oct 19, 1:14 PM
    • 39 Posts
    • 12 Thanks
    Billopp
    DWP guilty of Maladministration regarding GMP indexation
    High Dairy Queen,

    I thought I would keep you up to-date regarding GMP indexation . Two friends of mine have had a case with the Parliamentary Ombudsman against the DWP regarding not been told by them that they would no longer receive GMP indexation via the state pension calculation as promised in all DWP booklets and all occupational pension scheme booklets. They won their cases and on the 29 October the Parliamentary Ombudsman said they DWP were guilty of maladministration. This has taken four years to come to this conclusion.

    Attached are some paragraphs from their report.

    65. ln order to remedy the injustice we have identified that resulted from the DWPis
    maladministration, we recommend that the DWP should:

    a) Within one month of this report, apologise to Mr ? for the injustice
    (frustration and inconvenience) their actions have caused him;
    b) Within one month of this report the DWP shoutd pay Mr K !!!!in
    recognition of the injustice suffered;
    c) Within three months of this report, review and report back on to us on the
    learning from this investigation, including action being taken to ensure
    that affected individuals receive appropriate communication from the
    DWP about their state pensions. ln particular, the DWP should ensure that
    their literature clearly and appropriately references that some
    individuals, who have large GMPs and reach State Pension Age in the early
    years of the new State Pension, may be negatively affected by the
    changes. The DWP should advise individuals to check their circumstances,
    and should provide instructions for how to do this;
    d) Within three months of this report, review and report back about how
    other individuals who believe they have suffered an injustice as a resut of
    the maladministration we have found can raise any concerns with the DWP
    and have them considered; and

    e) Consider, and report back to us, whether this report and their response to
    our recommendations should be communicated to other interested parties
    such as the Chair of the Work and Pensions Select Committee.

    Notice the Ombudsman only said recommends the DWP should do it an did not say they had to.

    My friends are happy that the DWP are now guilty of maladministration but are not happy with the rest of the report because the Ombudsman has refused to look into why it happened or find out what Parliament were told about the loss of GMP paid via the state pension. From our researches we have not been able to find anything so are now wondering if the law was actually changed and if so have the DWP stopped doing the GMP calculation without the authority of Parliament .

    Possibly some of you can help us and tell me if you ever found any information about loss of GMP indexation being mentioned in DWP/Government publications before the New State Pension became law in May 2014.
    • xylophone
    • By xylophone 20th Oct 19, 3:49 PM
    • 31,697 Posts
    • 19,658 Thanks
    xylophone
    Possibly some of you can help us and tell me if you ever found any information about loss of GMP indexation being mentioned in DWP/Government publications before the New State Pension became law in May 2014.
    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/482871/impact-of-new-state-pension.pdf

    Have you seen the NAO report linked in post 9 above? It uses 2015-16 BSP figures in illustrations - it is quite obvious that DWP were aware of the GMP effect earlier than this and also clear that communication to those affected was less than adequate.

    This report reviews the Department’s approach to assessing and communicating the changes to Guaranteed Minimum Pensions resulting from the introduction of the new state pension.

    4.1 This part considers the assessment of the impact of pension reforms by the Department for Work & Pensions (the Department), and how it has communicated the impacts to people who will be affected.
    4.8 In March 2015 we wrote to the Department to highlight a lack of publicly available information and guidance on the scenarios under which pensioners might receive less pension under the new state pension. We found that it had not communicated the scenarios in which people could be worse off. We recommended that the Department review its communication strategy and distribute clear guidance, including scenarios relating to the end of contracting out and the indexation of Guaranteed Minimum Pensions’ increases.
    • DairyQueen
    • By DairyQueen 20th Oct 19, 7:31 PM
    • 1,030 Posts
    • 1,843 Thanks
    DairyQueen
    High Dairy Queen,
    ...
    Possibly some of you can help us and tell me if you ever found any information about loss of GMP indexation being mentioned in DWP/Government publications before the New State Pension became law in May 2014.
    Originally posted by Billopp
    I recall old threads on which xylophone (the forum's GMP maestro) posted several references to GMP indexation from government papers discussing the nSP. The government was certainly aware. Steve Webb (Pensions Minister in Cameron's government) was definitely aware.

    The changes to GMP indexation were not widely publicised and, tbh, GMP was (and is) very difficult to explain in the kind of media soundbites that most of us understand. Of course, it was also very convenient to marginalise the government's welching on their undertaking to those who had been contracted-out. Their (new) position being that they were not liable, and never had been, for contracted-out amounts. This despite (as xylophone demonstrated) official documents which proved otherwise. Indeed, the government had always provided the top-up indexation on GMP until the intro of the nSP. It had never been the contracted-out scheme's responsibility but the government adopted a new and misleading narrative that suggested that it (the government) had never undertaken this responsibility.

    I am not surprised that the Ombudsman found in favour of your friend. However, I also think it highly unlikely that it will make any difference. The government has now washed its hands of contracting-out and its legacy, other than the nominal COPE amount applied to the SP of those in transition. There is no way that any compensation will be forthcoming, nor will any reintroduction of GMP indexation.

    Some people were winners under the nSP rules, some were losers. Some will benefit from the transition rules and others won't. Nobody can amend their employment history of decades ago.
    One thing to bear in mind is that (for some GMP periods of employment) the revaluation rates were very generous as a prolonged low inflation rate was not foreseen when they were set. For some people, those generous revaluation rates in deferment will go a a long way to offset the lack of indexation once the GMP is in payment.
    • xylophone
    • By xylophone 20th Oct 19, 7:43 PM
    • 31,697 Posts
    • 19,658 Thanks
    xylophone
    GMP was (and is) very difficult to explain in the kind of media soundbites that most of us understand.
    Some people were winners under the nSP rules, some were losers. Some will benefit from the transition rules and others won't. Nobody can amend their employment history of decades ago.
    Very true - and this does come across in the very detailed and thorough NAO report.
    • hogweed
    • By hogweed 21st Oct 19, 11:26 PM
    • 97 Posts
    • 16 Thanks
    hogweed
    Thanks everybody – sadly, for me the most important thing you’re teaching me is that I haven't a hope in hell of understanding any of it.



    Also, whatever the rights and wrongs, I’m stuck with it all now.
    Fortunately, I live fairly frugally!


    Best wishes
    Roger
    • Billopp
    • By Billopp 22nd Oct 19, 10:22 AM
    • 39 Posts
    • 12 Thanks
    Billopp
    If you study the paragraphs at the end you will see that that the DWP are supposed to contact everyone affected to tell them about non payment of GMP indexation including any of you who are affected. This does not affect me as I started receiving my state pension in 2005.

    When I mentioned had anyone seen mention of GMP indexation not being paid I did not make myself clear, what I was asking was had anyone seen it mentioned in legislation that GMP indexation would not be paid. This would have had to have happened before it became law in May 2014 under the 2014 Pension Act.

    Have any of you thought about that the law might not of actually been changed to do away with GMP indexation and that the DWP are not paying GMP indexation with the approval of Parliament and may be doing it illegally.
    That is why I am asking if any of you seen non payment of GMP indexation actually mentioned in legislation not just articles in the press and reports by Natioal Audit Office, Treasury and Work and Pensions Committee which were all done after the 2014 Pension Act had become law in May 2014 .

    I don't know if any of you are aware of the 2011 pension act which became law in November 2011 which very clearly explained that GMP indexation a person would receive after state pension age was to be consolidated into the starting pension so that the GMP calculation after a person reached state pension age would not have to be done. The bit about GMP indexation did not have a start date as it would be decided some time in the future.
    Page 20 explains the old system for GMP indexation very well which for some reason the DWP now deny ever happened.

    Then read pages 21 to 28 which explains consolidation of GMP indexation after state pension age.
    As I said it did become law in November 2011 so why was it not used in the 2014 pension act/

    https://webarchive.nationalarchives.gov.uk/20110601202012/http://www.dwp.gov.uk/docs/pensions-bill-mpip.pdf


    c) Within three months of this report, review and report back on to us on the
    learning from this investigation, including action being taken to ensure
    that affected individuals receive appropriate communication from the
    DWP about their state pensions. ln particular, the DWP should ensure that
    their literature clearly and appropriately references that some
    individuals, who have large GMPs and reach State Pension Age in the early
    years of the new State Pension, may be negatively affected by the
    changes. The DWP should advise individuals to check their circumstances,
    and should provide instructions for how to do this;
    d) Within three months of this report, review and report back about how
    other individuals who believe they have suffered an injustice as a resut of
    the maladministration we have found can raise any concerns with the DWP
    and have them considered;
    • Billopp
    • By Billopp 22nd Oct 19, 11:56 AM
    • 39 Posts
    • 12 Thanks
    Billopp
    Dairy Queen.

    Some people were winners under the nSP rules, some were losers. Some will benefit from the transition rules and others won't.

    Nearly all public sector because their occupational pensions have been made to taker over the GMP indexation previously paid via the state pension

    Not seen a reduction in occupational pension because of employers NI rebate like most people in the private sector have,

    Possibly also being able to burn off some of the period for being contracted out by earning extra state pension. Most probably less than 1000,000 people in the private sector in final salary schemes open to future accrual as final salary.

    Most probably over 10 million people who were contracted in prior to 6 April 2016 who had GMPs who are now accumulating at a lower rate than they did under the old system.

    See article done by Institute of fiscal studies from which you will see for people who are contracted in low earners will receive about £42 pw less under the NSP and high earners about £57 pw less.

    I don't think the DWP has explained to anyone who was contracted in how much less they will receive under NSP

    Of those people who gain under NSP most probably 90% are in the public sector because they have not seen a reduction in their occupational pension like the private sector or loss of GMP indexation like the private sector.

    A Single-Tier Pension: What Does It Really Mean? July 2013
    https://www.ifs.org.uk/comms/r82.pdf

    Page 50
    • The relative advantage of the current system is also greater for those
    expecting to contribute for more than 35 years. The maximum amount of
    state pension income that someone in this cohort could receive under the
    proposed system is £146.30 per week. This compares with a maximum of
    £213.60 per week under the current rules for a high earner and £189.04 per
    week for a low earner (both with 49 years of contributions).
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