GMP

[Nimrod103]

https://www.telegraph.co.uk/pensions-re ... -pensions/

Can somebody explain in simple terms what this is all about, because the Telegraph article just says it is complicated?

I have a (relatively small) contracted out DB pension in payment from a large multinational (not HSBC). I have just received a letter with a breakdown of the payments I receive, which for the first time separates the payment into 3 parts (pre 1988 GMP, post 1988 GMP and non GMP). In the notes the letter (for the first time to my knowledge) says that pre GMP payments will not in future be uprated in line with inflation. How does that come about? It does not seem to have been a problem in the past few years when my whole pension has been uprated for inflation.

[Alaric]

In the notes the letter (for the first time to my knowledge) says that pre GMP payments will not in future be uprated in line with inflation.

It was in the small print of the original contracting out rules from the mid 1970s that the GMP component of a defined benefit pension payment didn't have to be indexed for inflation. This was in the context when at the time, it wasn't compulsory for private pensions to be inflation linked. The deal was that the State would provide the indexation part of the GMP. I've never quite known what happened to this feature, as the rules for State Pension have repeatedly changed.

At the time this rule that the State rather than the scheme would pay for indexation was introduced, 30% inflation was a recent memory. If required to underwrite this, no employers would have signed up for contracting out. In recent years, inflation linked increases of 2% to 3% have been modest in comparison.

[OLTB]

https://www.telegraph.co.uk/pensions-retirement/news/real-anger-hsbc-cuts-50000-staff-pensions/

Can somebody explain in simple terms what this is all about, because the Telegraph article just says it is complicated?

I have a (relatively small) contracted out DB pension in payment from a large multinational (not HSBC). I have just received a letter with a breakdown of the payments I receive, which for the first time separates the payment into 3 parts (pre 1988 GMP, post 1988 GMP and non GMP). In the notes the letter (for the first time to my knowledge) says that pre GMP payments will not in future be uprated in line with inflation. How does that come about? It does not seem to have been a problem in the past few years when my whole pension has been uprated for inflation.

Hi Nimrod103 - I hope that the following summary helps a little in explaining the escalation rate rules, and who is responsible for paying, for pension members who reached State Pension age before 6 April 2016:

GMP: <6.4.88 - Scheme: No requirement to provide any increases in payment. State: Fully in line with CPI
GMP: 6.4.88 - 5.4.97. Scheme: CPI capped at 3%. State: Any increase in CPI in excess of 3%

Non GMP <6.4.97. Scheme: No requirement to increase in payment
Non GMP >6.4.97 - 5.4.05. Scheme: CPI capped at 5% (LPI - Limited Price Indexation)
Non GMP >6.4.05 Scheme: CPI capped at 2.5%

*Statutory escalation was based on RPI prior to 2011.

Cheers, OLTB.

[tjh290633]

https://www.telegraph.co.uk/pensions-retirement/news/real-anger-hsbc-cuts-50000-staff-pensions/

Can somebody explain in simple terms what this is all about, because the Telegraph article just says it is complicated?

I have a (relatively small) contracted out DB pension in payment from a large multinational (not HSBC). I have just received a letter with a breakdown of the payments I receive, which for the first time separates the payment into 3 parts (pre 1988 GMP, post 1988 GMP and non GMP). In the notes the letter (for the first time to my knowledge) says that pre GMP payments will not in future be uprated in line with inflation. How does that come about? It does not seem to have been a problem in the past few years when my whole pension has been uprated for inflation.

Have you just reached State Pension Age? If so, up till now the scheme has provided the escalation , but some of that will now be paid as part of your State Pension. You will find that the "Contracted Out Deduction" will gradually rise, but not as much as your Additional State Pension rises. That's how you get the indexation. You may find that your occupational pension falls at the same time.

TJH

[Nimrod103]

https://www.telegraph.co.uk/pensions-retirement/news/real-anger-hsbc-cuts-50000-staff-pensions/

Can somebody explain in simple terms what this is all about, because the Telegraph article just says it is complicated?

I have a (relatively small) contracted out DB pension in payment from a large multinational (not HSBC). I have just received a letter with a breakdown of the payments I receive, which for the first time separates the payment into 3 parts (pre 1988 GMP, post 1988 GMP and non GMP). In the notes the letter (for the first time to my knowledge) says that pre GMP payments will not in future be uprated in line with inflation. How does that come about? It does not seem to have been a problem in the past few years when my whole pension has been uprated for inflation.

Have you just reached State Pension Age? If so, up till now the scheme has provided the escalation , but some of that will now be paid as part of your State Pension. You will find that the "Contracted Out Deduction" will gradually rise, but not as much as your Additional State Pension rises. That's how you get the indexation. You may find that your occupational pension falls at the same time.

TJH

Well yes I am very nearly 65, though because of my birth date, my state pension does not get paid until I am 65 and 4 months*.
I do wonder whether the private scheme is capable of compensating for this 4 month delay?

*I am not impressed that moving my birthday forward by a few days could have given me 4 months of extra pension.

[Nimrod103]

https://www.telegraph.co.uk/pensions-retirement/news/real-anger-hsbc-cuts-50000-staff-pensions/

Can somebody explain in simple terms what this is all about, because the Telegraph article just says it is complicated?

I have a (relatively small) contracted out DB pension in payment from a large multinational (not HSBC). I have just received a letter with a breakdown of the payments I receive, which for the first time separates the payment into 3 parts (pre 1988 GMP, post 1988 GMP and non GMP). In the notes the letter (for the first time to my knowledge) says that pre GMP payments will not in future be uprated in line with inflation. How does that come about? It does not seem to have been a problem in the past few years when my whole pension has been uprated for inflation.

Hi Nimrod103 - I hope that the following summary helps a little in explaining the escalation rate rules, and who is responsible for paying, for pension members who reached State Pension age before 6 April 2016:

GMP: <6.4.88 - Scheme: No requirement to provide any increases in payment. State: Fully in line with CPI
GMP: 6.4.88 - 5.4.97. Scheme: CPI capped at 3%. State: Any increase in CPI in excess of 3%

Non GMP <6.4.97. Scheme: No requirement to increase in payment
Non GMP >6.4.97 - 5.4.05. Scheme: CPI capped at 5% (LPI - Limited Price Indexation)
Non GMP >6.4.05 Scheme: CPI capped at 2.5%

*Statutory escalation was based on RPI prior to 2011.

Cheers, OLTB.

Thanks for this. Is it different for those who reach pension age after 6 April 2016? My main pension which I have not mentioned before, is from a contracted-in scheme, and as a result when I do retire, it will be under the old rules, not the new 'flat rate' pension.

[OLTB]

Thanks for this. Is it different for those who reach pension age after 6 April 2016? My main pension which I have not mentioned before, is from a contracted-in scheme, and as a result when I do retire, it will be under the old rules, not the new 'flat rate' pension.

Yes, it is different for those who reach pension age after 6 April 2016 - the state indexation awarded to both pre and post 88 GMP will no longer apply. There is some useful information here http://www.hoganlovellsukpensions360.co ... ooklet.pdf

Cheers, OLTB.

[mc2fool]

Yes, it is different for those who reach pension age after 6 April 2016 - the state indexation awarded to both pre and post 88 GMP will no longer apply.

It's not quite so simple. Any GMP amount baked into the "starting amount" for new state pension calculation for those people (technically the excess of revalued ASP over revalued GMP) will be indexed, along with the rest of the new state pension. However, having said that, for most people that amount will be zero, so they won't any state GMP indexation at all.

The effect of the transition rules to the new state pension on the state indexed GMP component was something totally hand waved and waffled over by Steve Webb & Baroness Altman...

[mc2fool]

Is it different for those who reach pension age after 6 April 2016? My main pension which I have not mentioned before, is from a contracted-in scheme, and as a result when I do retire, it will be under the old rules, not the new 'flat rate' pension.

It is different but you won't be retiring under the old rules per se but rather under the transition rules which will take the higher of what you'd get under the old and new rules as of 6 April 2016 as the "starting amount" and then apply new rules to that amount going forward.

If you haven't done so already, get yourself a state pension statement. https://www.gov.uk/future-pension-centre

[Nimrod103]

Is it different for those who reach pension age after 6 April 2016? My main pension which I have not mentioned before, is from a contracted-in scheme, and as a result when I do retire, it will be under the old rules, not the new 'flat rate' pension.

It is different but you won't be retiring under the old rules per se but rather under the transition rules which will take the higher of what you'd get under the old and new rules as of 6 April 2016 as the "starting amount" and then apply new rules to that amount going forward.

If you haven't done so already, get yourself a state pension statement. https://www.gov.uk/future-pension-centre

So, going forward, soon I will have:

1) My contracted out pension (do they term that excess pension?)
2) The GMP element of my contracted out pension
3) My contracted in pension
4) State pension
5) State pension element based on my S2P/SERPS contributions

Because (4) + (5) > (new flate rate pension), my state pension will be under transitional rules.

Am I right in assuming that (2) will in fact NOT be uprated in line with inflation, whereas 1,3,4 & 5 will be uprated? And uprated by what %? Will it compensate for the loss of uprating in (2)?

[mc2fool]

So, going forward, soon I will have:

1) My contracted out pension (do they term that excess pension?)
2) The GMP element of my contracted out pension
3) My contracted in pension
4) State pension
5) State pension element based on my S2P/SERPS contributions

Because (4) + (5) > (new flate rate pension), my state pension will be under transitional rules.

Am I right in assuming that (2) will in fact NOT be uprated in line with inflation, whereas 1,3,4 & 5 will be uprated? And uprated by what %? Will it compensate for the loss of uprating in (2)?

Ok, first thing to say is that the pension scheme is perfectly free to give you increases above the statutory minimums (as long as that's provided for in the scheme's rules). I would assume from your OP however that won't be the case, but it is worth checking on.

Secondly, the transitional rules apply to everyone retiring on or after 6-Apr-2016 who made contributions before that date. Anyone retiring before then is under "pure" old system, and those in future who retire having made contributions only for 2016/17 onwards will be under "pure" new system (obviously not anybody for quite a long time yet!).

Now, in regards to (2), it depends on if any and how much of your excess GMP is baked into your "starting amount" for the new state pension. To figure that is really quite complex and the answer is most likely to be zero, so, going with that, the answer is that the pre-88 component of your GMP will not be increased, ever, and the post-88 component will be increased annually by the pension scheme by CPI capped at 3%, only.

Re (1) this will be broken down into its components and increased (assuming they go just by statutory minimums) by the amounts given by OLTB in his earlier post. I.e. the GMP components as above and, of the rest, zero for pre-97 service, CPI max 5% for 97-05 service and CPI max 2.5% for service since.

Re (3) as above but with no GMP component.

Re (4) and (5) these are added together and then split at the new state pension full rate, everything above that being called your protected payment.

The new state pension amount will be increased annually by the "triple-lock" (higher of CPI, national earnings and 2.5%), the protected payment increased by CPI. https://www.gov.uk/new-state-pension/how-its-calculated

For people contracted in enough to be getting some additional state pension the new system is better than the old as the amount that gets increased by the triple lock is higher (up to full new state pension amount vs old basic state pension amount). Whether that's enough to compensate for the lack of GMP increases in your case is a complex exercise that will have to be applied to your specific figures and I will leave to you to do.

[Nimrod103]

Struth, Mc2fool, I needed to read that 3 times before I followed it, but many thanks for the time and effort you have put into explaining it. There are a few things there which I was not aware of.

It does look suspiciously like the Govt has mugged those who have paid higher NI in the past, and built up some S2P entitlement, in order to pay for the new flat rate pension.

[mc2fool]

Struth, Mc2fool, I needed to read that 3 times before I followed it, but many thanks for the time and effort you have put into explaining it. There are a few things there which I was not aware of.

It does look suspiciously like the Govt has mugged those who have paid higher NI in the past, and built up some S2P entitlement, in order to pay for the new flat rate pension.

If that's what you think then try reading the last paragraph again.

Folks who were always contracted in are better off for future increases and folks who were always contracted out are worse off. Those that have been some of each may be better or worse off and have some complex calculations to do to figure out which....

[Chrysalis]

Actually the government has overall mugged everybody with the new arrangements, because they are designed to be cheaper than the old arrangements (mostly by raising the age of entitlement).
The biggest losers compared to the old system are those who would have built up earnings related state second pension (so people in higher paid employment and contracted in largely). The biggest winners are probably the self employed.
But no one individually has lost the SSP entitlements they already accrued- they are baked into the starting amount.