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  • FIRST POST
    • Nomercer
    • By Nomercer 7th Apr 18, 7:58 PM
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    Nomercer
    No GMP indexation - really?
    • #1
    • 7th Apr 18, 7:58 PM
    No GMP indexation - really? 7th Apr 18 at 7:58 PM
    From 1979 to 1985 I paid into a private sector index linked defined benefit pension scheme and was contracted out of SERPs. I am retiring after April 2016. The pension documentation makes no mention of any part of the indexation being dependent on a third party such as the government so it was an unwelcome surprise when the pension administrators advised me late last year that the GMP part of this pension will not be index linked.
    1 Was I miss sold the pension in 1979 given there was no mention of GMP, government paid indexation etc?
    2 How can one party to a contract unilaterally downgrade the contract without even informing the other party?
    3 Does the pension administrator not have a duty of care to communicate significant changes to their customers?
    My apologies if this has been covered before, but I canít find answers to these questions.
Page 1
    • Brynsam
    • By Brynsam 7th Apr 18, 8:16 PM
    • 1,676 Posts
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    Brynsam
    • #2
    • 7th Apr 18, 8:16 PM
    • #2
    • 7th Apr 18, 8:16 PM
    1. No. The Scheme booklet will have covered the situation as it existed at the time. Nobody had a clue what would happen more than 30 years later
    2. It can when it's the government
    3. Not when they are extensively covered in the press - and when there is nothing you could do about it anyway..

    The answers above sound harsh, but in reality I couldn't be more sympathetic. If a private company had tried this on...
    • Nomercer
    • By Nomercer 7th Apr 18, 10:34 PM
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    Nomercer
    • #3
    • 7th Apr 18, 10:34 PM
    • #3
    • 7th Apr 18, 10:34 PM
    Re Q1, I thought the government funding of GMP indexation was in place in 1979 - as a part of a government drive to increase contracting out of SERPs - so the pension scheme should have declared this as a salient fact?
    • Brynsam
    • By Brynsam 7th Apr 18, 10:53 PM
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    Brynsam
    • #4
    • 7th Apr 18, 10:53 PM
    • #4
    • 7th Apr 18, 10:53 PM
    Re Q1, I thought the government funding of GMP indexation was in place in 1979 - as a part of a government drive to increase contracting out of SERPs - so the pension scheme should have declared this as a salient fact?
    Originally posted by Nomercer
    The pension scheme would have 'declared' it to the extent it was part of the scheme design and details were in whatever booklet was issued to members. Bear in mind that pension scheme membership could be a compulsory condition of employment until 1988 and employers could pretty much offer whatever pension arrangement they wished (subject to the legal/Inland Revenue rules then in force),so the question of 'misselling' could not arise where membership wasn't optional.
    • greenglide
    • By greenglide 7th Apr 18, 10:53 PM
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    greenglide
    • #5
    • 7th Apr 18, 10:53 PM
    • #5
    • 7th Apr 18, 10:53 PM
    It was one of the more technical changes of the change to nSP.

    The government had claimed several times that the indexation of GMPs (in part with complex rules) had never been the responsibility of the government.

    The majority of people who have a GMP will not have realised how much this may cost them - nSP was all about reducing cost, almost at any cost.
    • Nomercer
    • By Nomercer 8th Apr 18, 8:17 AM
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    Nomercer
    • #6
    • 8th Apr 18, 8:17 AM
    • #6
    • 8th Apr 18, 8:17 AM
    My loss is circa £110,000 (estimated using online annuity calculators) and that's from only 6 years of contributions.
    • hyubh
    • By hyubh 8th Apr 18, 10:15 AM
    • 2,274 Posts
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    hyubh
    • #7
    • 8th Apr 18, 10:15 AM
    • #7
    • 8th Apr 18, 10:15 AM
    From 1979 to 1985 I paid into a private sector index linked defined benefit pension scheme and was contracted out of SERPs. I am retiring after April 2016. The pension documentation makes no mention of any part of the indexation being dependent on a third party such as the government
    Originally posted by Nomercer
    Are you sure? That increases on GMP in payment were, in effect, to be paid with the state pension was the situation from the off with SERPS; this only changed in 1988, when GMP accrued from that date now had increases of inflation up to 3% paid by the scheme, with the difference between that and inflation (potentially - see below) paid with the state pension.

    I would find it very, very unlikely that any scheme documentation would imply indexation on the GMP in payment - do you still have your original statement of preserved benefits from the 80s...?

    My loss is circa £110,000 (estimated using online annuity calculators) and that's from only 6 years of contributions.
    Originally posted by Nomercer
    What revaluation method does the scheme use on the GMP? ('Revaluation' = the increases paid on a pension before it comes into payment.) This is important - if it was 'fixed rate' (most private sector schemes used/use this), then the GMP will have increased between leaving and 65 way beyond inflation, and in particular, the wage inflation used to revalue the SERPS you would have earned had you not been a member. As such, under the old state pension system, you wouldn't have got increases on the GMP through the state pension anyway. (Sounds a bit overcomplicated? That's just how it was designed.)

    Where you will have lost out is if the scheme used so-called 'full' rate (alias Section 21, Section 148) GMP revaluation, since then the GMP will have revalued in line with SERPS, and the idea was always that increases in payment would be paid, in effect, as SERPS increases with the state pension. That said, if your GMP does have S148 revaluation, I'd be even more surprised that the link between the GMP and the state pension (as then was) wasn't explicit in scheme documentation...
    • hyubh
    • By hyubh 8th Apr 18, 10:18 AM
    • 2,274 Posts
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    hyubh
    • #8
    • 8th Apr 18, 10:18 AM
    • #8
    • 8th Apr 18, 10:18 AM
    The majority of people who have a GMP will not have realised how much this may cost them
    Originally posted by greenglide
    That's only a minority of people with GMP however...
    • Brynsam
    • By Brynsam 8th Apr 18, 11:00 AM
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    Brynsam
    • #9
    • 8th Apr 18, 11:00 AM
    • #9
    • 8th Apr 18, 11:00 AM
    My loss is circa £110,000 (estimated using online annuity calculators) and that's from only 6 years of contributions.
    Originally posted by Nomercer
    Could you show the details of how you have calculated this - and hopefully someone can then reassure you that it isn't anything like as bad as that (it won't be!).
    • Dox
    • By Dox 8th Apr 18, 11:24 AM
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    Dox
    Where you will have lost out is if the scheme used so-called 'full' rate (alias Section 21, Section 148) GMP revaluation, since then the GMP will have revalued in line with SERPS, and the idea was always that increases in payment would be paid, in effect, as SERPS increases with the state pension. That said, if your GMP does have S148 revaluation, I'd be even more surprised that the link between the GMP and the state pension (as then was) wasn't explicit in scheme documentation...
    Originally posted by hyubh
    Even if it wasn't explicit, you would need to show you have suffered financial detriment and/or would have taken different actions - in this case not joining the scheme at all (although if membership was compulsory that's a non-starter). That argument will fail for two reasons: joining the scheme will have given you better benefits than not joining it, such as life cover/survivors' benefits if you died while in service with your employer and almost certainly a better pension than just relying on SERPS (any reference in scheme correspondence to your pension being split between the GMP element and the 'excess over GMP'?); and of course you paid lower National insurance contributions while you were a member of the scheme.

    Even if the scheme communications were less than sparkling, that alone does not create an entitlement where none would otherwise exist. In any case, a change in statutory provisions overrides the scheme rules - and nobody could have seen this one coming back in the 1980s.

    Your loss won't be anything like £100K+ for just six years of being contracted out so long ago, but without knowing how much your GMP is, it's hard to give you any sort of guesstimate - and of course you need to offset this by the improved state pension provisions you will now receive.
    Last edited by Dox; 08-04-2018 at 11:26 AM.
    • Pun
    • By Pun 8th Apr 18, 11:50 AM
    • 684 Posts
    • 570 Thanks
    Pun

    3 Does the pension administrator not have a duty of care to communicate significant changes to their customers?
    Originally posted by Nomercer
    Changes to scheme rules, yes - but not when the changes are driven by a change in legislation and there is no pre-emptive action the member can take to mitigate.

    Your estimate of your 'loss' sounds rather extreme, even if longevity runs in the family.
    • greenglide
    • By greenglide 8th Apr 18, 1:27 PM
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    greenglide
    Normally the scheme booklet would contain something like
    your pension will be increased each year to help offset the effects of inflation:
    !!!8226; Your GMP relating to service from 6 April 1988 will be increased with inflation up to 3% each year.
    !!!8226; Your Plan pension in excess of your GMP will increase at a minimum of 3% per annum for that part accrued prior to 6 April 1997. The portion accrued between 6 April 1997 and 5 April 2006 will increase in line with the lower of the rise in the Retail Prices Index (RPI) and 5% per annum. The portion accrued from 6 April 2006 will increase in line with the lower of the RPI and 2.5% per annum.

    The State no longer pays any increases to GMP after 6 April 2016.

    The Trustee, in conjunction with the Company, will consider the award
    The wording about the state paying towards the GMP used to say that indexation of the GMP, where appropriate, would be paid by the state along with the state pension.

    The current wording in my scheme is flawed as the government continues to index the GMP for anyone whose SPa was before 6th April 2016!
    • xylophone
    • By xylophone 8th Apr 18, 3:28 PM
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    xylophone
    See this thread from post 21 onwards to see what happened under the old state pension system.

    http://forums.moneysavingexpert.com/showthread.php?t=4532605&highlight=gmp+revaluation %20%20&page=2

    You will note the difference between what happened with Full Rate/Fixed Rate revaluation - it was quite possible for there to be no index linking through the state pension mechanism for a very long time when FR was used.

    After GMP age (60 F/65 M) the Scheme had no obligation to index link pre 88 GMP or post 88 GMP if the inflation index was 3% or under.

    Under the new system, the old index linking system linking occupational schemes to state pension has disappeared.

    As before, private Occupational Schemes will still pay no index linking on pre 88 GMP and will only index post 88 GMP to the extent that the inflation index is greater than 3%.

    When do you become eligible for State Pension?

    Have you obtained a State Pension Statement?

    https://www.gov.uk/check-state-pension
    • xylophone
    • By xylophone 8th Apr 18, 3:34 PM
    • 26,899 Posts
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    xylophone
    House of Commons Library


    BRIEFING PAPER
    Number SN-05649, 2 February 2018


    State Pension uprating -
    2010 onwards

    by Djuna Thurley

    can be downloaded here

    http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN05649#fullreport
    • woolly_wombat
    • By woolly_wombat 8th Apr 18, 8:02 PM
    • 585 Posts
    • 384 Thanks
    woolly_wombat
    http://www.thisismoney.co.uk/money/pensions/article-4187806/What-Guaranteed-Minimum-Pension-Steve-Webb-replies.html#comments

    Steve Webb attempting to justify the loss of inflation-linked increases to the GMP that used to be paid via the state pension:

    What happens to people with GMP who retire after April 2016?

    In April 2016, the Government made big changes to the state pension. No-one any longer builds up rights under SERPS and there is no longer any contracting out.

    So what happens to people retiring from April 2016 onwards is that a one-off calculation is done to see how much pension you have built up at that point.

    Someone who has been extensively contracted out will just get the basic state pension figure.

    And after that, the rather strange business of the state pension making up for some of the indexation - inflation-linked increases - that the occupational scheme never had to promise disappears.

    There are two ways of looking at this.

    One way would be to say that, taken in isolation, people in your situation have lost out on inflation-linked increases you would otherwise have had under the old rules.

    The other way would be to focus on the opportunity for post 2016 service which will enable you to build your state pension beyond the £119 per week which is all someone who was fully contracted out could ever have got under the old rules.
    Not great news for those who don't have time to build many additional years of state pension entitlement after April 2016.
    .
    • Nomercer
    • By Nomercer 9th Apr 18, 11:08 AM
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    Nomercer
    Thanks everyone for the replies, excellent information that I need to understand, sorry I was offline yesterday. Hereís some further information as requested:
    The £110k loss was estimated using the online annuity quote tool at moneyadviceservice.org.uk to establish the cost of an annuity to deliver my GMP (£6,502) at age 65 with and without index linking. The £110k is the difference between these two figures. So yes this quote is particular to my circumstances (63 year old healthy male) and my pension benefits (66% widows etc).
    My pension documentation doesnít mention anything to do with GMP (I have another DB pension from a different employer that is detailed in this respect so Iíve some idea of what it should look like!). I have asked the pension fund administrator to provide any relevant documentation they have but they have not responded to my requests over the last 3 months. I guess I will have to start down their complaints procedure to elicit a reply.
    Regarding indexation, my pension documentation states pensions shall be adjusted ďas if the rates of the increase specified in the Annual Review Orders issued in accordance with Section 2 of the Pensions (Increase) Act 1971 were applicableĒ.
    Regarding the GMP revaluation method, that is an interesting question thatís not referenced at all in my documentation, Iíll have to ask pension fund administrator. I have a state pension forecast; with 38 years of NI contributions it looks OK to my untutored eye. I understand it was calculated under the old rules.
    • Dox
    • By Dox 9th Apr 18, 1:37 PM
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    Dox
    The £110k loss was estimated using the online annuity quote tool at moneyadviceservice.org.uk to establish the cost of an annuity to deliver my GMP (£6,502) at age 65 with and without index linking. The £110k is the difference between these two figures. So yes this quote is particular to my circumstances (63 year old healthy male) and my pension benefits (66% widows etc).
    Originally posted by Nomercer
    The scheme will continue to provide your GMP, so the cost of buying an annuity from a commercial provider with/without index linking isn't what you've lost: you have 'lost' the income from index linking on £6,500 from age 65. Assuming 3% pa, that is approximately £200 a year. If you live until you are 90 (25 years) and ignoring compounding, that's £5,000 - more if you compound the increases (around £13,500), but in reality inflation may well drop below 3% (and yes, it could rise too, but I'm keeping the figures simple). Even allowing for this, there will still be a massive difference between your calculation of £110K and mine.
    Last edited by Dox; 09-04-2018 at 2:06 PM.
    • Nomercer
    • By Nomercer 9th Apr 18, 2:06 PM
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    Nomercer
    Dox, that's an interesting comparison. The incremental cost of index linking my pension via an annuity is say £110k; the benefit as you rightly show is say £13.5k. Can this discrepancy be explained by the pension funds allowing for a bout of high inflation and substantial increases in longevity?
    • Dox
    • By Dox 9th Apr 18, 2:12 PM
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    • 761 Thanks
    Dox
    Dox, that's an interesting comparison. The incremental cost of index linking my pension via an annuity is say £110k; the benefit as you rightly show is say £13.5k. Can this discrepancy be explained by the pension funds allowing for a bout of high inflation and substantial increases in longevity?
    Originally posted by Nomercer
    Don't forget that an occupational scheme isn't run to make a profit from its members and the employer(s) concerned are on the hook for any shortfall if the fund starts to run dry. Scheme funding is reviewed at least once every 3 years and employer contributions amended to keep the fund healthy. The reviews (triennial valuations) take into account scheme-specific experience as well as general changes in mortality etc.

    Annuity providers are commercial animals who build in a healthy profit margin and a very substantial 'risk' barrier to guard against someone living miles longer than mortality tables tell them they should! No employer is going to put their hand in their pocket and offer the provider a top up if they have underestimated the cost of providing the annuity.

    I hope the figures make you feel a bit better, albeit still annoyed.
    Last edited by Dox; 09-04-2018 at 2:36 PM.
    • dampsquib
    • By dampsquib 10th Apr 18, 9:23 PM
    • 174 Posts
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    dampsquib
    The idea of a GMP must have been a good idea when it was introduced, but now many pensioners seem to suffer from lower increases and inequality when their pension includes an element for GMP. As GMP still kicks in at 60 for women, they start to receive lower occupational pension rises than men of the same age, until men also become entitled to GMP at 65. There's a case going to court this year in an attempt to establish if this inequality needs to be tackled by pension schemes. The legal case was first mooted by the union at Lloyds, but I gather the union, Lloyds, and their pension scheme trustees are now jointly seeking a legal ruling.
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