Guaranteed Minimum Pension (GMP)

1. What is GMP?

GMP is an amount of pension that must be paid by pension schemes that were contracted out (on a defined benefit basis) of the State Earnings Related Pension Scheme (SERPS) between 6 April 1978 and 5 April 1997.

Contracting out meant that the National Insurance contributions that would normally have been paid to the Government for the accrual of SERPS were paid to the pension scheme instead to accrue GMP.

GMP can be taken by women from the age of 60 and men from the age of 65.

2. Transfers

If transferring to a defined benefit scheme or section 32 policy, the GMP must be retained. Therefore, you should check if the scheme is willing to take on the liability attached to holding GMP.

If transferring to a money purchase scheme the GMP status will be lost. It will be converted to normal pension rights and included in the cash equivalent transfer value received by the new scheme, to be treated as such.

3. Death benefits

Widow's GMP is 50% of the GMP the member would have been entitled to on date of death.

Widower/Civil Partner's/Same sex marriage GMP is 50% of the GMP accrued after 5 April 1988 that the member would have been entitled to on date of death.

This entitlement includes:

• any increase due to deferment at GMP age, and
• any increases paid as escalation

The beneficiary’s GMP entitlement cannot be reallocated by an unmarried member to enhance their own GMP.

You should check the scheme rules to find out more about payment of beneficiary’s GMP and when it will stop, for example on remarriage.

4. Revaluation

Once a member has left the pension scheme(deferment), the GMP must be increased each year until the individual takes those benefits. The increase due in deferment is called ‘revaluation’.

5. Escalation

Once GMP is in payment increases are called escalation. Any GMP accrued prior to 6 April 1988 does not have to be increased. Any GMP accrued between 6 April 1988 and 5 April 1997 must increase each year by at least CPI up to a maximum of 3%.

GMP can be deferred and after seven complete weeks beyond the GMP payable age, must be increased by 1/7% for each complete week that retirement is deferred. The increase will be applied after any escalation rates due are applied.

6. GMP Equalisation

In October 2018 a High Court ruled that the trustee in that case was “under a duty to amend the Schemes in order to equalise benefits for men and women so as to alter the result which is at present produced in relation to GMPs.”

This means that scheme Trustees of all schemes with GMP, need to determine how they are to achieve this outcome. There are several methods possible, but although guidance has been issued, the decision lies with the Trustee.

The DWP has issued guidance on the use of GMP conversion, which includes a possible methodology that allows for both the equalisation and conversion of GMPs.

7. Conversion

Trustees can convert GMP benefits to normal defined benefits if they have gained formal consent of the employer and have taken reasonable steps to consult affected members.

Legislation requires the conversion to be made by means of actuarial equivalence. This is to ensure that the actuarial value of a member's rights before and after a proposed change, do not lead to a disadvantage for the member.

Converted GMP benefits still must provide a statutory minimum spouse’s/civil partner’s pension for death benefits, both before and after retirement. Pension commencement lump sums are permitted and there are no restrictions on subsequent transfers out to other registered pension schemes for post conversion benefits.