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  • FIRST POST
    • kuepper
    • By kuepper 2nd Aug 18, 9:32 PM
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    kuepper
    Bit baffled by Guaranteed Minimum Pension
    • #1
    • 2nd Aug 18, 9:32 PM
    Bit baffled by Guaranteed Minimum Pension 2nd Aug 18 at 9:32 PM
    Had state pension since 2013 and also had a pension from working in local govt


    I realised this year that my personal local govt pension annual increase was less than the 3% quoted. When I queried this I was told the balance to make it up to 3% was paid by the state as part of my state pension and this had been part of the 2016 changes. This didn't sound right and I asked for a fuller explanation.



    After various exchanges I was sent the link below which purportedly "details responsibilites on funds for increases in pensions during the period of contracting out i.e. when you paid into the fund for any period during 1978 to 1997." Those dates include my 16 years service. The text the link takes you to is parliamentary gobbledegook to me. Can anyone explain this briefly in language a lay person would understand so I know if i'm being treated right? Thanks!


    https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN04956#fullreport
Page 1
    • hyubh
    • By hyubh 2nd Aug 18, 10:03 PM
    • 2,270 Posts
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    hyubh
    • #2
    • 2nd Aug 18, 10:03 PM
    • #2
    • 2nd Aug 18, 10:03 PM
    I realised this year that my personal local govt pension annual increase was less than the 3% quoted. When I queried this I was told the balance to make it up to 3% was paid by the state as part of my state pension and this had been part of the 2016 changes.
    Originally posted by kuepper
    Other way round - you reached state pension age before the 2016 changes, so your pension follows pre-2016 rules.

    The old state pension (applicable to you) involved two parts, basic and additional. The former is unaffected by 'contracting out' (in your case by being a member of a contracted-out final salary scheme), the latter is, since the idea of it was to provide a salary-related pension for people who didn't have one otherwise.

    However, things were (are) complicated by it not simply being the case that you either had an occupational pension or earned an additional state pension -

    - Between 1978 and 1997, contracted-out schemes like the LGPS had to provide a 'GMP' that (sort of) directly corresponded to the additional state pension ('SERPS') you would have had, had you not been a member. In exchange, a lower rate of National Insurance was applicable.

    - GMP earned on membership ('service') between 1978 and 1988, however, is not index linked in payment by the scheme. Instead, your state pension each year is calculated as if you had been contracted into the additional state pension, before the GMP the scheme must pay is taken off; the net figure is then added to your basic state pension.

    - GMP earned on service between 1988 and 1997 *is* index linked in payment by the scheme, but only up to 3%. If official 'pensions increase' is higher, then a similar situation to pre-88 GMP arises, i.e. your state pension is calculated as if you had been contracted in, then your GMP (including any statutory increases paid by the scheme) is netted off.

    Things get even more complicated with most private sector final salary schemes, partly because the pension increase rates on their 'excess' (i.e. non-GMP) pension usually isn't the official 'pensions increase' that SERPS and public sector pensions share, and partly because they are free to chose a 'fixed rate' revaluation method for GMP that means the value of it on reaching state pension age can be quite different to the SERPS the member would have had on contracting in. However, the same principle outlined above applies.
    Last edited by hyubh; 02-08-2018 at 10:07 PM.
    • xylophone
    • By xylophone 2nd Aug 18, 10:11 PM
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    xylophone
    • #3
    • 2nd Aug 18, 10:11 PM
    • #3
    • 2nd Aug 18, 10:11 PM
    https://www.kentpensionfund.co.uk/local-government/pensioner-member-receiving-a-pension/guaranteed-minimum-pension
    • kidmugsy
    • By kidmugsy 2nd Aug 18, 10:52 PM
    • 11,725 Posts
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    kidmugsy
    • #4
    • 2nd Aug 18, 10:52 PM
    • #4
    • 2nd Aug 18, 10:52 PM
    Things get even more complicated with most private sector final salary schemes ...
    Originally posted by hyubh
    When I discussed one subtlety with the office of my principal FS pension, at one point the clerk said "and we have to guess that figure because we don't know it". If I understood her correctly (if!) their guess probably erred in my favour so we ended the call on the best of terms. The amount involved in the guess wasn't large and the only way I could have checked it properly was by using bits of paper that, if they had ever existed, must have been lost in house moves decades ago. So there we are: I'm numerate, the clerk was on the ball and helpful, and still a small component of my pension is based on a guess.

    It took my wife's FS scheme four different attempts to calculate her pension; we have no way of knowing whether the last calculation was right.

    It's all pretty unsatisfactory.
    Free the dunston one next time too.
    • kuepper
    • By kuepper 3rd Aug 18, 8:41 PM
    • 683 Posts
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    kuepper
    • #5
    • 3rd Aug 18, 8:41 PM
    • #5
    • 3rd Aug 18, 8:41 PM
    I'd be lying if I said I understand it all now! I'm a bit clearer but I just don't seem to have the cognitive skills to absorb this fully. At the end of the day I just want to be able to check that my state pension includes the amount that my pension fund say it does in order to leave me with the amount of money in total I would have received if my pension fund had given me the full 3% it announced

    My 2018 state pension notice shows:

    basic state pension of 125.95
    Pre 97 Additional State Pension A
    less Contracted-Out Deduction (COD) B

    Total payable (A-B) C
    Post 97 additional State pension D
    Graduated retirement benefit E

    The amount each week is F (ie 125.95+C+D+E)


    So which figure is supposed to be /include the amount paid to make up my local govt pension to the amount it would have been if I had received the 3% increase?
    Last edited by kuepper; 03-08-2018 at 8:43 PM.
    • hyubh
    • By hyubh 3rd Aug 18, 9:06 PM
    • 2,270 Posts
    • 1,744 Thanks
    hyubh
    • #6
    • 3rd Aug 18, 9:06 PM
    • #6
    • 3rd Aug 18, 9:06 PM
    My 2018 state pension notice shows:

    basic state pension of 125.95
    Pre 97 Additional State Pension A
    less Contracted-Out Deduction (COD) B

    Total payable (A-B) C
    Post 97 additional State pension D
    Graduated retirement benefit E

    The amount each week is F (ie 125.95+C+D+E)

    So which figure is supposed to be /include the amount paid to make up my local govt pension to the amount it would have been if I had received the 3% increase?
    Originally posted by kuepper
    What results from the pre-97 ASP less the COD.
    • kuepper
    • By kuepper 3rd Aug 18, 9:24 PM
    • 683 Posts
    • 112 Thanks
    kuepper
    • #7
    • 3rd Aug 18, 9:24 PM
    • #7
    • 3rd Aug 18, 9:24 PM
    [QUOTE=hyubh;74614344]What results from the pre-97 ASP less the COD




    the princely sum of 4
    • hyubh
    • By hyubh 3rd Aug 18, 9:39 PM
    • 2,270 Posts
    • 1,744 Thanks
    hyubh
    • #8
    • 3rd Aug 18, 9:39 PM
    • #8
    • 3rd Aug 18, 9:39 PM
    [What results from the pre-97 ASP less the COD

    the princely sum of 4
    Originally posted by kuepper
    Sorry, I meant 'the answer to your question is, "What results from the pre-97 ASP less the COD"', not 'What results from the pre-97 ASP less the COD?'. That said, how does this marry up to the difference between your LGPS pension for March 2018 x 1.03 vs. your actual LGPS pension for May 2018? (Ignore April because that month is a bit fiddly - LGPS excess and GMP increases come into affect on a different days.)
    • xylophone
    • By xylophone 3rd Aug 18, 9:40 PM
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    xylophone
    • #9
    • 3rd Aug 18, 9:40 PM
    • #9
    • 3rd Aug 18, 9:40 PM
    You reached SPA before 6 April 2016?


    When you reached SPA you received a letter along these lines from LGPS?


    Dear Mr Kuepper

    LGPS Pension Fund

    We refer to your pension paid by LGPS.

    We have now received confirmation from HMRC of the amount of GMP that is payable from your 65th birthday.

    The GMP elements of your pension increase in payment at different rates to your main fund pension. We therefore detail below the revised split of your pension and the future increases that you will receive from the Fund.

    Pre 1988 GMP xxx per annum No Increase from the Fund. Increase may be provided by the State and paid with your State pension.

    Post 1988 GMP yyy per annum Increase in line with CPI up to a maximum of 3% each year. Any increase in excess of 3% will be provided and paid by the State

    Fund Excess Pension zzz per annum In line with the CPI.


    The GMP equates to the COD shown on your DWP letter.

    The pre 88 GMP does not increase.

    The post 88 GMP increases by CPI (up to 3%) in the September previous to the April increase.

    Let's suppose that the ASP shown on the DWP in your first SP letter was 100 and your COD was 80, made up of 70 pre 88 and 10 post 88.

    Your ASP is therefore 20.

    In the following year, the ASP is increased by CPI of (say) 4%.

    ASP becomes 104.

    Your pre 88 GMP remains the same.

    Your post 88 GMP becomes 10.30.

    Your ASP is then 104 - 80.3O which equals 23.60.

    You can see then that the DWP has paid the full 4% increase on your pre 88 GMP and the excess over 3% on your post 88 GMP (3% having been paid by your scheme).

    Did you look at the example provided for "Tim" in the link in my post 3 above which gives an example of how pension increase would be calculated and paid if you paid into the LGPS before 1997 and had a GMP amount?
    Last edited by xylophone; 03-08-2018 at 10:31 PM. Reason: typo
    • xylophone
    • By xylophone 3rd Aug 18, 9:50 PM
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    xylophone
    And in connection with the above, and using my hypothetical figure of 4% CPI , your scheme pension statement would show no increase on pre 88 GMP, 3% on post 88 GMP and 4% on the excess.
    • kuepper
    • By kuepper 3rd Aug 18, 10:10 PM
    • 683 Posts
    • 112 Thanks
    kuepper
    Sorry, I meant 'the answer to your question is, "What results from the pre-97 ASP less the COD"', not 'What results from the pre-97 ASP less the COD?'. That said, how does this marry up to the difference between your LGPS pension for March 2018 x 1.03 vs. your actual LGPS pension for May 2018? (Ignore April because that month is a bit fiddly - LGPS excess and GMP increases come into affect on a different days.)
    Originally posted by hyubh

    Sorry you;ve lost me there with the nuance you're trying to convey re ASP/COD. My 2018/19 pension is ~8/month less than I would have had if I'd got the full 3% rise in my local govt pension, so where would I find if that 2 a week was included in my state pension?
    Last edited by kuepper; 03-08-2018 at 10:22 PM.
    • kuepper
    • By kuepper 3rd Aug 18, 10:12 PM
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    • 112 Thanks
    kuepper
    And in connection with the above, and using my hypothetical figure of 4% CPI , your scheme pension statement would show no increase on pre 88 GMP, 3% on post 88 GMP and 4% on the excess.
    Originally posted by xylophone

    I have no recollection of getting a letter along the lines you state. Neither my scheme pension statement nor the DWP state pension statement mentions pre or post 88


    is SPA state pension age? reached that before april 2016
    Last edited by kuepper; 03-08-2018 at 10:21 PM.
    • kuepper
    • By kuepper 3rd Aug 18, 10:33 PM
    • 683 Posts
    • 112 Thanks
    kuepper
    "Let's suppose that the ASP shown on the DWP in your first SP letter was 100 and your COD was 80, made up of 70 pre 88 and 10 post 88.

    Your ASP is therefore 20."

    The ASP can't be 100 and 20, do you mean the amount payable is 20?

    How did you get to the 10.30 figure?
    • xylophone
    • By xylophone 3rd Aug 18, 10:38 PM
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    xylophone
    I have no recollection of getting a letter along the lines you state. Neither my scheme pension statement nor the DWP state pension statement mentions pre or post 88
    The DWP statement refers to pre 97 Additional State Pension.

    This amount is the SERPS to which you would have been entitled had you not contracted out of SERPS.

    The COD comprises the GMP built up in your scheme 1978 -1988 and 1988-1997.

    When exactly were you in the LGPS?
    • xylophone
    • By xylophone 3rd Aug 18, 11:20 PM
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    xylophone
    "Let's suppose that the ASP shown on the DWP in your first SP letter was 100 and your COD was 80, made up of 70 pre 88 and 10 post 88.

    Your ASP is therefore 20."

    The ASP can't be 100 and 20, do you mean the amount payable is 20?

    How did you get to the 10.30 figure?
    The DWP shows a figure for pre 97 ASP.

    From this is deducted the COD.

    Your ASP (ie the amount payable to you) is the pre 97 ASP minus the COD.

    Thus had the pre 97 ASP been 100 and the COD 80, ( 70 pre 88/10 post 88) then your ASP (the amount payable to you) would be 20.

    I then hypothesised that the CPI for the following year was 4%.

    The DWP figure then becomes 104.

    The pre 88 figure does not change.

    In my example it remains 70.

    The post 88 figure (10) is increased by the scheme up to CPI to a maximum 3% - it therefore becomes 10.30.

    The total COD therefore becomes 70 + 10.30 = 80.30.

    This is deducted from 104 to give ASP payable with the SP of 23.60.

    Have a look at post 45 here

    https://forums.moneysavingexpert.com/showthread.php?t=4532605&page=3&highlight=

    In this particular case, Howy 22's statement from DWP showed that in the year 2012/13, the pre 97 ASP was 98.83.

    His COD for that year was 98.17.

    His scheme administrator had provided the GMP split (60.65 pre 88/ 38.17 post 88).

    For that year the ASP payable with his SP would have been 0.66.

    In the following year, CPI was 2.2%.

    The pre 97 ASP becomes 101.

    The pre 88 GMP remains the same.

    The post 88 GMP becomes 39.01

    The COD becomes 99.66.

    The ASP payable becomes 101 minus 99.66.

    Howy receives 1.34 pre 97 ASP with his state pension.
    • xylophone
    • By xylophone 3rd Aug 18, 11:34 PM
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    xylophone
    Can you say exactly when you were in LGPS?

    If it was between 1978 and 1997, have you studied the example of Tim in the link in post 3?
    Last edited by xylophone; 04-08-2018 at 9:01 AM. Reason: add bold
    • kuepper
    • By kuepper 4th Aug 18, 9:26 PM
    • 683 Posts
    • 112 Thanks
    kuepper
    Can you say exactly when you were in LGPS?

    If it was between 1978 and 1997, have you studied the example of Tim in the link in post 3?
    Originally posted by xylophone

    1978-94


    yes I've seen that but I don't know what my pre and post 88 amounts are
    • xylophone
    • By xylophone 4th Aug 18, 11:09 PM
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    xylophone
    yes I've seen that but I don't know what my pre and post 88 amounts are
    But surely your annual statement of pension increase shows this?

    Otherwise, ask LGPS to set out your personal situation as it is set out for Tim in the example.

    Presumably you can look at your annual state pension statements for 2013 to the present and see what is happening to your COD?
    • kuepper
    • By kuepper 5th Aug 18, 10:00 PM
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    • 112 Thanks
    kuepper
    I assure you neither my state nor loc govt pension statements mention 1988 at all


    Yes I can see the COD for each year. Having compared the last 2 years I can see that the increase in COD equates more or less to the reduction I perceived in this years increase to my loc gov pension, is that what you are alluding to?
    • xylophone
    • By xylophone 6th Aug 18, 11:16 AM
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    xylophone
    I assure you neither my state nor loc govt pension statements mention 1988 at all

    Re State Pension - see post 14. The DWP simply refer to pre 97 ASP.

    The pre 97 ASP is the SERPS that would have been payable if the Scheme had not contracted out.

    The COD is the sum of pre 88 and post 88 GMP.


    With regard to increases on pre 97 GMP, have you understood the information given in my post 15 above about the increase applied to Howy's pension?

    You are in Howy's position with regard to your pension increases.

    The DWP index links (by previous September CPI) your pre 88 GMP.

    Your Scheme index links by previous September CPI (and pays with your scheme pension) your post 88 GMP up to 3% - were CPI higher than this the DWP would index link the difference.




    Re LGPS - you say that you worked for LGPS between 1978 and 1994.

    Therefore you have pre 88 GMP/post 88 GMP and excess.

    Presumably you receive a pension increase letter from LGPS every year.


    I have asked my relative (who is in receipt of State pension and DB pension with pre and post 88 GMP) about pension increase letters.


    His letter from DB Admin

    shows increase (or otherwise)

    pre 6 April 88 GMP

    post 6 April 88 GMP

    Fund pension.

    I don't know how LGPS do it.

    I am wondering whether Silvertabby who is expert in LGPS can throw some light.

    Otherwise, I can only suggest that you ask your LGPS administrator to explain your figures.
    Last edited by xylophone; 06-08-2018 at 4:41 PM. Reason: typo
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