Guaranteed Minimum Pension: thousands of pensioners owed up to £32k

If your pension scheme was contracted out, then you may be in line for an uplift.

Life is not exactly easy for the nation’s pensioners.

Sure, they have the benefit of the triple lock, which ensures that their State Pension increases by a minimum of 2.5% every year but let’s be honest, the State Pension alone is not going to lead to a comfortable retirement.

That’s why the money squirrelled away in private and occupational pension schemes are so important, as they are absolutely the difference between spending your final years counting the pennies and, instead, enjoying a little bit of comfort.

However, it would appear that thousands ‒ potentially even millions of pensioners ‒ aren’t receiving the right amounts from their pensions and may be owed cash.

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What is a guaranteed minimum pension (GMP)?

It all comes down to guaranteed minimum pensions (GMP). As the name suggests, it outlines the minimum you should receive from that pension. 

It was the result of the complicated old State Pension system, where savers received both the basic State Pension and the State Earnings Related Pension Scheme (SERPS).

Defined benefit occupational schemes were able to ‘contract out’ members from the SERPS, so long as they provided a minimum replacement income to those members in the form of a GMP.

Now, back in 2018, the High Court ruled that these GMPs should be equalised for males and females, to eradicate any gender differences.

This was no small decision ‒ according to Mercer, around 80% of the defined benefit schemes in the UK were impacted, meaning they’d have to go over the pensions of millions of members to ensure they are receiving the correct amounts. 

I’m owed thousands!

XPS Pension Group has been working with pension schemes on GMP equalisation schemes, with some eye-catching results.

More than half of the schemes have owed individual pensioners £10,000, while every single scheme has owed at least one pensioner a minimum of £500.

But in some cases the owed amounts are even more significant. One scheme that worked with XPS was found to owe a pensioner a whopping £32,000.

Vicky Mullins, GMP equalisation lead at the firm said that as they produce these calculations for more and more schemes, a “clearer picture” of the owed amounts is emerging and that even schemes which consider themselves largely unaffected owe some members hundreds of pounds, at the bare minimum.

Who is owed money?

Pension schemes are in a difficult spot, then.

They need to put together a process to identify the savers who are owed money, verify precisely how much they are owed, and then get that money to them.

They need to get a wriggle on too, since pension firms may need to include these additional sums in their annual accounts, meaning they don’t have long to get a handle on what they owe and to whom.

This would be difficult enough if there was a single, recommended route for schemes to follow. But this is the world of pensions we’re talking about ‒ why have one simple answer when we could have a dozen complicated ones?

While HM Revenue & Customs has published guidance for schemes on GMP equalisation, there are apparently an awful lot of holes in there, leaving schemes to guess how to fill in the blanks.

For example, according to Mercer, it does not cover the option of converting GMPs into other benefits, which “leaves scheme trustees and sponsors in a difficult position because HMRC has not fully defined some of the options theoretically available for equalising GMP”.

In other words, pension schemes who want to do the right thing may feel like they are having to make it up as they go along, as they aren’t getting a comprehensive steer from the authorities.

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What can I do?

So what should you do if you think you might be one of the pensioners affected by the equalisation?

XPS suggests that there are two main things to check in order to see if you may be entitled to an uplift in your pension.

The first is whether you built up pension benefits between 17th May 1990 and 5th April 1997.

If so, you need to check whether your benefit statement for this pension mentions guaranteed minimum pension or GMP at all.

Just because you clear both of those hurdles, it doesn’t mean you are entitled to more cash of course.

XPS points out that “only around half of people that meet these criteria will actually get uplifts, as this will depend on whether your pension would have been higher if you were the opposite sex.

Many of these uplifts will be small, but some will be very significant as our research shows.”

Beyond that, all schemes should be writing to affected members anyway to confirm whether they receive an uplift or not, though there is no specific deadline that firms need to meet.

As a result, it may be worth giving your scheme a nudge to ensure they are running the calculations on whether you are one of the pensioners owed money.