 |
|
Guaranteed Minimum Pension
A Guaranteed Minimum Pension or GMP is best explained as follows. The Social Security
Pensions Act 1975, which came into effect on 6 April 1978 provided for the State retirement pension to be related to the earnings on which National Insurance contributions were paid. It consisted of two parts:
1. A basic pension, and
2. An additional earnings related pension known as SERPS, now known as S2P.
Pension schemes that provided an approved alternative to SERPS could ‘contract out’ of this part of the State pension scheme. By contracting out of SERPS members who were under State Pension age paid lower National Insurance contributions. This means that most members who were in employment between 6 April 1978 and 5 April 1997, the date from which the scheme was abandoned, were paying superannuation contributions towards an Occupational Pension instead of paying the full rate National Insurance contributions towards an additional pension from the state. This is what is meant by the term ‘contracted out’.
As a result the SPPA guarantees that at State pension age the benefits from the scheme will be at least as much as the additional pension they would have received from the State had they remained within SERPS and not been contracted out. This is known as the Guaranteed Minimum Pension or GMP.
- PRE AND POST APRIL 1988 GMP’S (return to top)
From 6 April 1988 changes in legislation have the effect of splitting the GMP. Therefore service from 6 April 1975 to 5 April 88 becomes the Pre 88 GMP and service from 6 April 1988 until 5 April 1997 becomes the Post 88 GMP. It is important to recognise that the GMP is paid as a component of your pension and not as an addition.
Therefore the percentage increases that the SPPA will pay on your total pension are as follows;
SPPA will not pay any increase on Pre 88 GMP, the increase due on any GMP relating to service prior to 6 April 1988 will be paid with your State Pension by the Department of Work and Pensions (DWP).
SPPA will pay an increase on Post 88 GMP, up to a maximum of 3%, as part of your annual pension. Any increase over 3% will be paid along with your State Pension by the Department of Work and Pensions (DWP).
The remainder of your pension, after the setting aside of the GMP components, will be increased by the annual increase rate, e.g. 3.9% for 2008.
This explains why your annual pension increase is sometimes lower than the full percentage increase as only certain components are increased by the SPPA as the diagram below illustrates.
There are always a few exceptions to the above, for instance some overseas members may be affected slightly differently, if you think that your increase is incorrect then please write to us and we will check that you are receiving the correct pension.
Page last updated: 16 Oct 2008