GMP Pension Fund

PensionGMP · 14 April 2013 at 10:58AM

Hi All,

I am turning 65 in august this year and have a pension from Philips which I started taking in 2004 (left the Philips scheme on 23/12/1988). I would like to understand how GMP affects my pension at 65. The pension fund has not given me a estimate and I am unclear as what it means. What pension will I receive from Philips and what pension will I receive from the state? Any help would be greatly appreciated.

After asking them I received a letter back stating the following:

I can confirm that upon your retirement from the fund in 2001, you were offered an annual pension of £2387.28. In accordance with your completed option form it appears that you exchanged £216 of your pension in order to provide a cash lump sum of £4280.17.

As a result of your membership of the fund you have been contracted-out of the Earnings related part of the state scheme which began on 6 april 1978. In respect of your pensionable service from 6 april 1978 the fund has to provide you with a minimum pension from the state retirement age. This guaranteed minimum pension forms part of your pension at age 65.

The GMP at age 65 that forms part of your pension is revalued at 7.5% per annum for each complete tax year from your date of leaving to state retirement age. This figure will be confirmed closer to your 65th birthday by HMRC. For your information I can confirm that your GMP entitlement as at 23/12/1988 was £1774.24.

Thanks

mania112 · 14 April 2013 at 11:36AM

Your final salary pension is revalued each year from the date you leave the company.

The GMP portion has a fixed revaluation as dictated by law. GMP is essentially money that would have been paid into SERPS (the additional state pension) but was instead put into your Philips pension (and explains why there's a legal requirement for it to be revauled, rather than just a scheme requirement).

The value at which the GMP portion revalues until age 65 is based on the date you leave, for you it's 7.5% (for someone who leaves today it's 4.5%, so good for you on that one).

The excess over GMP also revalues, but at different rates, and I don't know what they are.

So, on the day you left in '88 the pension offered was £2,387.28 pa.

£216 of that was sacrificed to supply with a lump sum, which in '88 was £4,280.17.

I don't quite understand your situation - did you take only the excess early?

PensionGMP · 14 April 2013 at 11:59AM

Hi,

Thanks for your reply.

I left the pension scheme in 88.

I did not take the pension until 2004 they gave me £2387.28 pa but I sacrificed £216 for a lump sum. so in effect got £2171.28

Since then the pension has been going up by 3% and today is worth just under £3000.

As I am turning 65, I have been told that the GMP will kick in...so I wanted to know what my new pension will be at 65.

What is an excess in this case?

Let me know if I need to clarify anything.

xylophone · 14 April 2013 at 11:59AM

http://tpas.amaze.com/workplace-pension-schemes/final-salary-schemes/revaluation http://forums.moneysavingexpert.com/showthread.php?t=4391605

post 18 - you should receive one of these from DWP

http://forums.moneysavingexpert.com/showthread.php?p=60468353&highlight=#post60468353 see post 12 and post 13

xylophone · 14 April 2013 at 12:04PM

https://www.gov.uk/state-pension/how-to-claim
Have you seen this?

If you want your state pension paid weekly (in arrears) you must specifically request this when you claim.

PensionGMP · 14 April 2013 at 12:32PM

thanks for the links.

I just want to clarify from that information. I am still confused around GMP and the implications for my pension.

If Philips have said my GMP entitlement as at 23/12/1988 was 1774.24. With a 7.5% increase each year does that mean at 65 I will get approx 10,000 pension? What happens to the £3000pa they were paying me?

Is this right?

SeekTruth · 14 April 2013 at 3:47PM

PensionGMP wrote: »

thanks for the links.

I just want to clarify from that information. I am still confused around GMP and the implications for my pension.

If Philips have said my GMP entitlement as at 23/12/1988 was 1774.24. With a 7.5% increase each year does that mean at 65 I will get approx 10,000 pension? What happens to the £3000pa they were paying me?

Is this right?

Thanks for posting this thread. I am in a vaguely similar position and am currently trying to get information from my ex-employer about precisely how GMP affects my pension once I reach State Pension Age.

By August you should presumably have a revised pension statement from Philips showing the pension that they will pay from that date, split into pre-88 GMP, post-88 GMP and excess. I hope you will consider posting the detail as I, for one, would be interested.

For what it's worth, my understanding is that in August your GMP will be calculated as £1,774.24 x 1.075^24 = £10,065. However, I wouldn't be too surprised if it was revalued for 23 rather than 24 years, which would give £9,362. So, as from August your Philips pension will increase to at least £9,362.

This is where I get even more hazy in my understanding. I think that in addition to the £9,362, say, GMP they will pay an excess. When you started taking the pension the total paid was £2,171.28 of which £1,774.24 was GMP - that is 82% was GMP and 18% was excess. So, I am guessing that of your current pension of about £3,000 about 18%, that is £548, is excess and the remainder GMP. In other words, from August I am guessing they will pay you GMP of at least £9,362 plus excess of £548.

Once in payment Philips will not increase the pre-88 GMP element (which in your case is presumably virtually all of the GMP) at all. They will increase the post-88 GMP element by inflation (presumably CPI) capped at 3% and they will pay their normal increases (which you imply is 3% per year) on the excess.

[This next paragraph is my attempt at a rewording of the information in some of the posts that xylophone references above – if you are happy with his references then just ignore this paragraph!] The idea is that the inflation increases on the pre-88 GMP (and any inflation above 3% on post-88 GMP) is paid by the government with your state pension. This works by the government calculating your Additional State Pension for any contracted out period between 1978 and 1997 as though you were contracted in, but then deducting a Contracted Out Deduction (COD) from the result. The COD is equal to the GMP. When you left employment in December 1988 the SERPS you had accrued as Additional Pension would have been equal to the COD (or GMP). However, since then the Additional Pension has increased with average earnings whilst the COD (or GMP) has increased at 7.5% I guess the COD will be rather larger than any SERPS earned between 1978 and 1997. This means it will be some time before you see any inflation increases equating to the GMP actually being paid in your state pension.

SeekTruth · 14 April 2013 at 9:14PM

Just done a quick check on the numbers. Are you sure that your GMP entitlement as at December 1988 was £1,774.24?

By my calculation the most it could have reached by April 1989 was £1,160 and that is assuming that your pay in every year from 1978 to 1989 was over the Upper Earnings Limit (£6,240 in 1978/9 rising to £15,860 in 1988/9).

xylophone · 14 April 2013 at 11:33PM

Op says that he left the Philips Scheme in 1988 but did not draw the pension until 2004- The pensions administrators (Towers Watson?) seem to think he left the scheme in 2001? I don't quite understand what has happened here.

The GMP figure for 1988 does seem very high?

Could the administrators have taken his gmp in 1988 and revalued it by 7.5% pa to 2013 giving the figure of £1774.28?

The OP brought his deferred pension into payment when he was 56 (when scheme pension age was 60?). He therefore suffered an actuarial reduction (?) and his annual pension was further(?) reduced because he chose to commute £216 for a lump sum.

His pension in 2004 was £2171.28 pa - this must have included his GMP?

Up to state pension age, the whole pension is increased in line with scheme rules (apparently 3% pa?) but the first scheme pension increase after state pension age will be affected by the GMP rules?

If £1774.28 is actually the (virtually all pre 88 GMP) at state pension age, then the scheme will only be liable to increase approx £1226 by scheme rules?

It seems likely that his ASP for 78-97 will be less than his COD?

SnowMan · 15 April 2013 at 11:32AM

This is my best guess only, but without trying to put some numbers on it then confusion reigns. It depends also on the scheme rules which I don't have access to:

The GMP quoted by the scheme of £1,774.24 per annum looks like the the GMP REVALUED to age 65, it looks way too high to be the GMP at leaving and I doubt the scheme would have allowed you to take any cash on early retirement if the revalued GMP wasn't covered at 65.

If that is correct the GMP at leaving in 1988 was £312.52 per annum taking out 24 years of 7.5% GMP revaluation (as 312.52 x 1.075^24 = 1774.24).

You took your scheme pension early in 2001 (or was it is 2004, there is a discrepancy). The whole early retirement pension (after taking cash) of £2,171.28 you say is currently increasing at 3% pa. This sounds plausible as it is normal on early retirement for the WHOLE early retirement pension to increase up to age 65 in line with the scheme pension increase rate in payment.

So working broadly your early retirement pension of £2.171.28 might have increased in payment by 3% per annum from 2001 (adjustment required if this is really 2004) to 2013 so about 12 years (say) so by August 2013 will be about £3,096 per annum (= 2,171.28 x 1.03^12).

When you get to age 65 the way the scheme increases in payment work subsequently change. It depends on the scheme rules. But what would NORMALLY happen is that the revalued GMP of £1774.24 will be increased by the scheme only in line with statutory GMP increases. Statutory GMP increases only apply to GMP accrued after 6th April 1988 so as most of your GMP is pre 88 most is not increased in payment by the scheme after age 65.

Just to put some numbers on it I will assume that the £1,774.24 pa revalued GMP is made up of (say) £300 post 88 GMP and 1,474.24 pre 88 GMP.

So your early retirement pension of £3,096 (after scheme increases in payment to age 65) is made up of three elements that will probably be increased by the scheme at different rates (or not at all). So in this case the breakdown of the scheme increases that will be applied to the pension of £3,096 per annum after age 65 (= 300 + 1474.24 + 1,321.76) is

1. £1,474.24 pa (pre 88 GMP) not increased in payment by scheme
2. £300 pa (post 88 GMP) increased by sceme at the lower of 3% pa and price inflation
3. £1,321.76 pa the balance (or excess) that continues to increase at the apparent scheme increase rate of 3% per annum.

However after age 65 the STATE (as opposed to the scheme) MAY pay some of the increases in payment that you no longer get on the GMP as part of the State pension you are paid. In fact what they MAY pay are inflationary increases on the pre 88 GMP of £1,474.24 per annum. They may also top up any increases on the post 88 GMP to the rate of inflation from 3% (where inflation has been over 3%) but that is a minor thing.

However it is highly possible that the STATE won't pay these top-ups (or alternatively won't start paying them until some time in the future). That is due to a complication that the State scheme doesn't pay those extra increases where it calculates that the state pension foregone by contracting-out is less than the replacement contracting-out pension paid by the scheme (taking into account any contracted-in periods from which additional state pension has accrued also from which any contracting-out shortfall can be offset). I won't overcomplicate by trying to explain all the scenarios here.

The starting point for trying to improve on this guess is to clarify with the scheme that the GMP of £1,774.24 per annum includes the 7.5% increases up to age 65. Might be helpful also to have the split between pre 88 GMP and post 88 GMP.

GMP Pension Fund

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