No GMP indexation - really?
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Nomercer
Posts: 10 Forumite
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 can’t find answers to these questions.
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 can’t find answers to these questions.
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Comments
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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...0 -
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?0
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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?
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.0 -
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.0 -
My loss is circa £110,000 (estimated using online annuity calculators) and that's from only 6 years of contributions.0
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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
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.
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...0 -
greenglide wrote: »The majority of people who have a GMP will not have realised how much this may cost them
That's only a minority of people with GMP however...0 -
My loss is circa £110,000 (estimated using online annuity calculators) and that's from only 6 years of contributions.
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!).0 -
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...
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.0 -
3 Does the pension administrator not have a duty of care to communicate significant changes to their customers?
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.0
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