GMP and deferred pension

DT2001 · 8 July 2018 at 11:34AM

I am a member of The Barclays Bank 1964 Pension scheme. I took redundancy in Dec 1995 at the age of 35.

In June 2011, as I had asked for an up to date quotation, I was advised that the treatment of GMP element had changed. Originally (2008 valuation - £6.4k p.a.plus £3.2k GMP) the GMP element was increased by 7% p.a. and payable when I drew my pension. Now (2011) the GMP would be paid without revaluation until I was 65.

I decided to take my deferred pension in Nov 2011 as once in payment there could (I hope) be no other detrimental changes. My tax free lump sum was restricted to about 0.5% because of the ring fenced GMP element being a high proportion of the pension.

I have checked a number of threads and wanted to check my understanding of the situation.
At 65 (7 years time) will the original GMP portion (£1339 - quote not split pre and post 1988) be 'worth' £9.5k?
If my existing pension (£7559) is below that figure which is likely if inflation stays low will I get an increase to £9.5k?
As my whole pension is then GMP does this affect any annual increases?
At 66 and 2 months I reach SPA and am due to have my pension reduced by £666, will this happen as all my pension is GMP?

I am awaiting a reply from Tower Watson who administer the scheme however I might not be asking all the right questions! With your help I hope I can more fully understand what will happen with my pension and therefore allow me to have a good backup plan.

xylophone · 8 July 2018 at 12:15PM

Have you obtained a new state pension statement?

https://www.gov.uk/check-state-pension

Do you have any pre 88 GMP? After GMP age, the scheme is not obliged to pay any increases on pre 88 GMP and only up to 3% on post 88 GMP.

Re Barclays pension - below may be of interest

https://forums.moneysavingexpert.com/showthread.php?t=4736856&highlight=mikefloutier&page=9

DT2001 · 8 July 2018 at 10:44PM

Thanks Xylophone,

I have checked my state pension forecast and it says I need 1 more year for the full amount.

I was employed from August '78 so have pre 88 GMP.

I have had a quick read of the linked thread and need to go through it slowly and carefully as it raises quite a few points.

I thought I understood that GMP was purely a guarantee of a pension figure but this seems at odds with 2 of the letters from Barclays. The 1st states "your Deferred Pension currently stand at £6413 plus a GMP of £62.06 p.w.
NB: - The GMP is separately identified because it corresponds to the earnings related State Pension you would have earned in SERPS"

The 2nd letter in Aug 2011 "the non GMP portion of your deferred pension has been increased annually .....The GMP portion of your pension has not been increased, but will be at your GMP Payment Date"

Am I missing something?

xylophone · 9 July 2018 at 11:41AM

Have you kept your "Statement of Deferred Benefits" which should have been provided when you left in 1995?

It should have given details of pre 88 GMP, post 88 GMP and excess.

You are male?

If so, your GMP age is 65. GMP age used to align with State Pension Age but this is no longer the case.

You say that you started drawing your deferred pension in 2011, presumably with an actuarial reduction.

Presumably the whole of your pension in payment is increasing in payment by RPI up to a maximum of 5%?

This will continue to be the case up to GMP age.

At that stage the Administrator must ensure that your pension in payment is at least as great as your GMP revalued to GMP age.

Have a look at post 167 onwards in
https://forums.moneysavingexpert.com/showthread.php?t=4736856&highlight=mikefloutier&page=9

From that point your pension increase letter should show the split of your pension into pre 88 GMP, post 88 GMP and excess.

The pre 88 will not be increased by the Scheme, the post 88 will be increased by the scheme up to 3% CPI and the balance by Scheme Rules (RPI up to 5% with the possibility of a higher increase at the discretion of the Trustees).

The Barclays Scheme applies a State Pension Reduction at SPA - see post 43 in thread above.

DT2001 · 9 July 2018 at 9:55PM

I have followed the thread from post 1 onwards. Wow, backs up my dealing with Pension administrators so far. Finally made it to post 167 and am so pleased to have many points of reference. It has answered questions that I would not have asked.

I am male, I took my actuarially adjusted pension in Nov 2011 but do not have the split pre/post 1988.

I will await Towers Watson!!!8217;s reply to see that it applies the same !!!8216;rules!!!8217; as in Mike Floutier!!!8217;s case.

Thanks again for your guidance.

DT2001 · 11 July 2018 at 8:10AM

TW have, on receiving my email, incorrectly updated my contact email address. The reply will be resent within5 days.
In the meantime can I ask regarding anti franking - in the post 162 on Mike Floutier he says it is not allowed except under 37A and 41A-41E of the 1975 Act. Is that the Social Security Act? When I looked at what I thought were the relevant passages it did not seem applicable so was unsure if I had found the correct place?

xylophone · 11 July 2018 at 1:29PM

post 162 on Mike Floutier

Post 165?

Social Security Pensions Act 1975

Section 37A referred to annual increases of GMP

Section 41 A-E to Protection of Pensions

https://www.legislation.gov.uk/ukpga/1975/60/contents

But the 1993 Act partially repealed and amended certain sections.

https://www.pensions-pmi.org.uk/news-and-publications/pensions-terminology/?p=6

https://www.ompensions.co.uk/media/255935/kb-franking.pdf

http://www.nortonrosefulbright.com/knowledge/publications/141433/pensions-briefing-guaranteed-minimum-pensions

DT2001 · 12 July 2018 at 7:19PM

TW's reply is below - I must admit I am having trouble understanding it, at the moment. Does it apply the same rules as to Mike Floutier?

I am asking for a copy of the guide to what happens to your pension as I do not have one

If you choose to take early retirement from the Scheme, a test is carried out to ensure that upon reaching age 65 your total pension amount would be enough to cover the level of GMP that you are entitled to.
In order to calculate an early retirement pension, your excess, or non-GMP, benefits are revalued to the date the calculation is produced and then assumed future increases are applied up to your Normal Retirement Age (NRA) of 60. Your GMP (as at your date of leaving) is then added to this value and an early retirement reduction factor is then applied to these benefits. This gives you your Total Pension amount (at your early retirement date).
If you chose to take normal retirement the value of your excess benefits are revalued, this time using known increases, up to your NRA and the value of your GMP is then added to this value to give your Total Pension amount as at age 60. Your GMP benefits are not revalued before age 65, regardless of whether you take early or normal retirement.
Between your retirement date and your GMP payment age (65), your Total Pension is increased in line with the Retail Price Index (RPI) capped at 5% each October.
Upon reaching age 65, your GMP is incorporated into the total value of your pension and is not added on top. Therefore, your pension is split into three sections, and increased as follows:
Non-GMP (increased in line with RPI capped at 5% each October)
Pre 1988 GMP (no increases applied by the Scheme)
Post 1988 GMP (increased in line with CPI capped at 3% each April)
Total Pension as at 65
I appreciate that it may appear that your excess value is being reduced to incorporate your GMP into your pension. However, your GMP value is already included in your Total Pension when you retire but can only be broken down, as shown above, upon reaching age 65.
However, as your GMP benefits could receive a large increase when you reach age 65, a test is carried out to determine whether your benefits are entitled to receive a !!!8216;step-up!!!8217;. This test involves comparing the increases applied to your pension between your actual retirement date and age 65 against the increase in the GMP. If the increase in the GMP is higher, then the difference is given to you as a !!!8216;step-up!!!8217; in your benefits. The example in page 10 of the !!!8216;What happens to your pension when you leave Barclays!!!8217; booklet is demonstrating a !!!8216;step-up!!!8217;.
An early retirement calculation does this !!!8216;step-up!!!8217; test immediately at your actual retirement age. It projects the future increases applied to your pension based on assumptions provided by the Scheme Actuary and then compare this to the GMP that will come into payment at age 65, which is known as it revalues at a fixed rate. If the value of your GMP is higher than a !!!8216;step-up!!!8217; will be given at your retirement date.
The normal retirement calculation does not take this into account and the benefits that would be paid are those revalued to your normal retirement age, as stated above. The !!!8216;step-up!!!8217; test is then carried out when you reach age 65 and your pension would be adjusted accordingly, in line with the example on page 10 of the !!!8216;What happens to your pension when you leave Barclays!!!8217; booklet.
All of the above information is based on current pension legislation and the current Trust Deed and Rules of the Scheme. These can change at any point in the future and due to this we are unable to confirm whether your benefits will receive a !!!8216;step-up!!!8217; at GMP payment age or not.
I hope this clarifies how your GMP benefits are treated

DT2001 · 12 July 2018 at 9:31PM

Xylophone, I posted TW!!!8217;s reply before seeing your links.

Having read those I assume anti franking does not apply because I left before the NRD (60?)

I will ask TW for pre and post 88 figures and the booklet they refer to.

To calculate where I will be, from their reply, I think I need to
1. Estimate my pension at 65
2. Take off the starting value
3. Get the increase - about £3k
4. Work out the increase in GMP - £1339*1.07* 29 years
5. Take the increase in pension from the increase in GMP and result is the possible step up

Do you think this is right? I have previously assumed I need just increase GMP and see if this was greater than the expected pension at 65 and then I would have a wholly GMP pension.

Thank you for your patience as you can see I am definitely struggling to fully understand why and what will happen at 65 and 67. I can then plan accordingly.

xylophone · 12 July 2018 at 10:18PM

As far as I can see from the above;

You did choose to take your deferred pension before Scheme NRA so that the "GMP test" was carried out to ensure that upon reaching age 65, your total pension amount would be enough to cover the level of GMP to which you were entitled.

In order to calculate your early retirement pension, your excess, or non-GMP, benefits were revalued to the date the calculation was produced and then assumed future increases were applied up to your Normal Retirement Age (NRA) of 60. Your GMP (as at your date of leaving) was added to this value and an early retirement reduction factor (actuarial adjustment) was then applied to these benefits. This gave you your Total Pension amount at your early retirement date.

The early retirement calculation projected the future increases applied to your pension based on assumptions provided by the Scheme Actuary and then compared it to the GMP that would come into payment at age 65, (which was known as it revalued at a fixed rate). If the value of your GMP was higher then a step-up was given at your retirement date.

In this connection see post 101 of the Mike Floutier thread.

Between 2011 (retirement) and 2025 (GMP age), your Total Pension is increased each October in line with the Retail Price Index (RPI) capped at 5%.

At age 65, your pre 88 GMP/post 88 GMP/ excess will be shown split out on your Notice of Increase from the Administrator.

Non-GMP will be increased in line with RPI capped at 5% each October
Pre 1988 GMP will not be increased by the Scheme)
Post 1988 GMP will be increased in line with CPI capped at 3% each April.

Mike Floutier refers to the booklet in post 134 but notes that there is no example for early retirement.

DT2001 · 14 July 2018 at 7:31PM

Thanks again.
Are TW obliged to provide a break down of the calculation of pension at drawdown as I would like to be convinced that they did as have been suggested?
I had a quote for August 2011 showing GMP portion at 1339 and non GMP at 7044. Obviously subject to actuarial reduction.

GMP and deferred pension

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