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GMP Guaranteed Minimum Pension cap query
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My "final salary" pension increases with inflation up to a cap at 5%. I was "contracted-out" (if that's relevant).
A substantial part of my pension is identified as a "Guaranteed Minimum Pension" element (over �5000 of it). This sum is excluded from the Company's inflation calculation. It is not an additional pension, is split out from the pension by "pension fund" laws,
The GMP element is inflation-capped at only 3%, apparently a Government-imposed cap, (Result, overall Co. pension inflation increase is far below the "index" when inflation exceeds 3%)
The effect, therefore, when inflation exceeds 3%,.is to penalise those pensioners who had saved for years for their retirement via Company pension schemes,
The 3% cap on GMP appears to be arbitrary. Is it ever reviewed by Government, if so, by whom and when? .
A substantial part of my pension is identified as a "Guaranteed Minimum Pension" element (over �5000 of it). This sum is excluded from the Company's inflation calculation. It is not an additional pension, is split out from the pension by "pension fund" laws,
The GMP element is inflation-capped at only 3%, apparently a Government-imposed cap, (Result, overall Co. pension inflation increase is far below the "index" when inflation exceeds 3%)
The effect, therefore, when inflation exceeds 3%,.is to penalise those pensioners who had saved for years for their retirement via Company pension schemes,
The 3% cap on GMP appears to be arbitrary. Is it ever reviewed by Government, if so, by whom and when? .
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Seems harsh, but the govt has limited funds, and inflation will not go away if everone put's up costs, salaries, benefits to compensate. There are many penioners on fixed annuties who suffer even more from inflation. However with a bit of luck teh 3% figure may be reviewed from time to time to reflect inflation but i don't know. Have you looked on any govt websites?
Ah this question puts a different angle on your other question about the Basic State Pension for you and your spouse.
The tems 'contracted out' and 'GMP' go together. It means that your employer agreed with you to provide a set of pension benefits without the inclusion of the Basic State Pension for the period in years that you were a member. It entitled your employer to pay a reduced rate NI contribution for you (because the Government was not accruing the money to pay you the basic State pension bit.
The GMP is the minimum pension that your pension trustees had to offer in place of the equivalent basic State Pension for that period of years (contributions). The rules were complicated (as always) and changed in 1997 when T Blair Esq took over the job.
Up til now most holders of GMPs have been laughing because the indexation rate of the 3% (if applied by their provider) has far outstripped price inflation , which in turn is the benchmark by which successive Governments have indexed State pensions. Its only now that inflation has shot above above 3% that this appears to be an issue.
Some stuff on GMPs here from the TUC (which there's a fair chance is unbiased).
http://www.worksmart.org.uk/jargonbuster/index .php?id=289
The tems 'contracted out' and 'GMP' go together. It means that your employer agreed with you to provide a set of pension benefits without the inclusion of the Basic State Pension for the period in years that you were a member. It entitled your employer to pay a reduced rate NI contribution for you (because the Government was not accruing the money to pay you the basic State pension bit.
The GMP is the minimum pension that your pension trustees had to offer in place of the equivalent basic State Pension for that period of years (contributions). The rules were complicated (as always) and changed in 1997 when T Blair Esq took over the job.
Up til now most holders of GMPs have been laughing because the indexation rate of the 3% (if applied by their provider) has far outstripped price inflation , which in turn is the benchmark by which successive Governments have indexed State pensions. Its only now that inflation has shot above above 3% that this appears to be an issue.
Some stuff on GMPs here from the TUC (which there's a fair chance is unbiased).
http://www.worksmart.org.uk/jargonbuster/index .php?id=289
Thanks for the reply.
Factor30, unless you know different, it's not the Government who pays - GMP is included with the Company pension payment. The only (tenuous?) connection is that the Company pension element annual increase is calculated/paid in November, but the GMP increase is delayed to April (same as State Pension increase date).
Buyers can choose which Annuity they want - "fixed" is more cash in the early years, but eroded by inflation. They could opt to buy an inflation-proofed one - less initial cash, but remaining at same value year on year.
.
OK, I'm better off than "fixed annuity", but, you get what you pay for. Unlike pensions, where you THINK you know what you are paying for. The GMP element is a real spanner in the works when you THOUGHT you had paid for inflation-proofed pension up to 5% - reducing the first �5000 plus to 3%cap is over �2 a week less income (that's the TV license, or close to).
Factor30, unless you know different, it's not the Government who pays - GMP is included with the Company pension payment. The only (tenuous?) connection is that the Company pension element annual increase is calculated/paid in November, but the GMP increase is delayed to April (same as State Pension increase date).
Buyers can choose which Annuity they want - "fixed" is more cash in the early years, but eroded by inflation. They could opt to buy an inflation-proofed one - less initial cash, but remaining at same value year on year.
.
OK, I'm better off than "fixed annuity", but, you get what you pay for. Unlike pensions, where you THINK you know what you are paying for. The GMP element is a real spanner in the works when you THOUGHT you had paid for inflation-proofed pension up to 5% - reducing the first �5000 plus to 3%cap is over �2 a week less income (that's the TV license, or close to).
Buildersmate, thanks to you also. Checked the "worksmart" link out, seems to be a basic dictionary of terms without too much in-depth explanation,
.
Since I get full State Pension based on full personal NI record, I don't fully understand the implications of reduced EMPLOYER contribution - but, do I need to, for this?
.
Wish I was QUOTE "laughing because of GMP indexation 3%" UNQUOTE - as far as I can see, with current inflation at 5%, the �5000+ GMP deduction from my total Co pension for inflation calculation results in >�100 p.a. less income.
Are you saying that this 3% is not a cap, but a fixed percentage on the GMP, ongoing? (the only logical explanation for your "laughing" comment would be if inflation was less than 3% and GMP increase was fixed at 3%)
.
If so, �5000 becomes �5150 (thus increasing loss of income, as the Co pension attracting the current 5% inflationary increase will be reduced by �5150)?
.
Since I get full State Pension based on full personal NI record, I don't fully understand the implications of reduced EMPLOYER contribution - but, do I need to, for this?
.
Wish I was QUOTE "laughing because of GMP indexation 3%" UNQUOTE - as far as I can see, with current inflation at 5%, the �5000+ GMP deduction from my total Co pension for inflation calculation results in >�100 p.a. less income.
Are you saying that this 3% is not a cap, but a fixed percentage on the GMP, ongoing? (the only logical explanation for your "laughing" comment would be if inflation was less than 3% and GMP increase was fixed at 3%)
.
If so, �5000 becomes �5150 (thus increasing loss of income, as the Co pension attracting the current 5% inflationary increase will be reduced by �5150)?
I'm afraid that you have flumuxed me. I still believe my explanation of GMP is correct - and it seems to be supported by this.
http://www.sharingpensions.co.uk/glossary14.ht m#text5
(scroll down a bit).
But since a male currently needs 44 qualifying years to get a full basic state pension state, I don't understand how you are getting the full basic state pension as you were contracted out for some of your working life. (Unless the contracted out period was very short and you started work at say 16 - so still managed to get the full 44 years in).
My comment about the 3% cap not being an issue until now was made because, with price inflation under 3%, private sector schemes have been able to outstrip price inflation if trustees have chosen to give benefits at up to 3% annual inflation. You have only just retired, so have not benefited, and worse still, inflation has just taken off and the scheme is capped. I can only suggest you address this question to your pension trustees.
This is entirely a guess, but maybe Government originally prevented private schemes inflating their GMPs by more than 3% to prevent any temptation to provide benefits for current retirees in preference to future generations of retirees. It could also be seen as an anti-inflationary measure.
http://www.sharingpensions.co.uk/glossary14.ht m#text5
(scroll down a bit).
But since a male currently needs 44 qualifying years to get a full basic state pension state, I don't understand how you are getting the full basic state pension as you were contracted out for some of your working life. (Unless the contracted out period was very short and you started work at say 16 - so still managed to get the full 44 years in).
My comment about the 3% cap not being an issue until now was made because, with price inflation under 3%, private sector schemes have been able to outstrip price inflation if trustees have chosen to give benefits at up to 3% annual inflation. You have only just retired, so have not benefited, and worse still, inflation has just taken off and the scheme is capped. I can only suggest you address this question to your pension trustees.
This is entirely a guess, but maybe Government originally prevented private schemes inflating their GMPs by more than 3% to prevent any temptation to provide benefits for current retirees in preference to future generations of retirees. It could also be seen as an anti-inflationary measure.
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