How the Guaranteed Minimum Pension (GMP) Reconciliation could affect your pension

‘Contracting out’ ended on 5 April 2016 when the single tier State Pension system was introduced. From this point, HM Revenue & Customs (HMRC) stopped tracking contracted out rights and issued data to pension schemes so they could compare their records against data held on scheme records.

The comparison of data between HMRC and pension schemes, known as the Guaranteed Minimum Pension (GMP) Reconciliation, encompassed the entire contracting out period, 6 April 1978 to 5 April 2016.

The GMP Reconciliation allowed schemes to confirm that data held on their scheme records (including GMP amounts and scheme member start and end dates) agreed with the data held by the National Insurance Contribution Office. HMRC issued up to date reconciled member data on completion of the reconciliation.

In some cases, the comparison of scheme records exposed under or overpayments in individual cases. The SPPA has corrected Police and Firefighter scheme pensions and is now correcting NHS and Teachers’ cases.

GMP corrections arising from NHS and Teachers’ scheme’s reconciliation exercise 

In common with public service schemes across the UK a number of cases were identified from the reconciliation exercise where GMP data held by schemes was incorrect.

In the majority of cases this resulted in schemes paying too much annual indexation to affected pensioners where all or part of the GMP indexation had also been paid by the Department for Work and Pensions (DWP).

In a small number of cases the incorrect GMP led to an underpayment of pension.

We have corrected the GMP values and pensions in payment and have written to those affected confirming their updated annual pension values.

The following answers aim to address some of the members’ questions that may arise.

Guaranteed minimum pension Q&A

What is a GMP?

A GMP is the minimum pension which an occupational pension scheme must provide. It applies to schemes which contracted-out of the State Earnings Related Pension Scheme from 1978 and entitlement accrued up to 1997. Contracted out employment ceased in April 2016 with the introduction of the new State Pension. All public service schemes, for example NHS, Teachers, Police, Firefighters and Local Government, were contracted out.

People who were members of a contracted out pension scheme between 1978 and 1997 may have been eligible for a GMP element within their occupational pension. It is a notional benefit which is only paid if the occupational pension is less than the GMP total and is not a separate benefit to be paid in addition to their occupational pension.

Does every pensioner have a GMP?

No. Only those in contracted–out employment between 1978 and 1997 and who paid the full national insurance contribution have a GMP. Various groups of pensioners will not have a GMP entitlement, for example those who were paying the reduced married women’s rate of National Insurance.

How do you know what the value of GMP should be?

HMRC calculated the GMP values using National Insurance contribution information from employers. Prior to 6 April 2016 HMRC would send SPPA a notification before a pensioner reached state pension age. The notification advised SPPA of the amount of GMP to go into payment.  The reconciliation of data with HMRC provided SPPA with definitive GMP values for all eligible pensioners.

How does GMP affect the annual Pension Increase?

If you reached State Pension Age before 6 April 2016, and have a GMP entitlement, the SPPA apply the pension increase to all your scheme pension until you reach State Pension age and claim your State pension. From then, the Government pays part of your GMP pension increase with your State Pension. 

How has this issue come to light?

As part of the end of contracting-out employment and the introduction of the new single tier State Pension from April 2016 pension took on the responsibility for maintaining scheme member’s GMP records where responsibility previously rested with HMRC. HMRC's Scheme Reconciliation Service was created to ensure contracting out and GMP records were agreed between schemes and HMRC. The reconciliation exercise identified cases where either no GMP was held by the scheme where one should be or the GMP held by the scheme was incorrect.

When will I know if I have been affected by this problem?

HMRC has provided definitive data to schemes and we are currently identifying any affected pensioners. We’ll writing out to those affected from November 2021 confirming their updated annual pension value.

Why has my pension decreased?

The annual indexation on a GMP for a scheme pensioner who reached state pension age before April 2016 is paid either by DWP or by a combination of DWP and the occupational scheme. Where a scheme does not hold details of a member’s GMP or does hold a GMP but the amount held is incorrect then there will be an error on the annual indexation applied in the first year the GMP is applied which will then be compounded by each and every annual indexation.

In the affected cases part of the annual increases on the GMP will have been paid by both the scheme pension administrator and the DWP, resulting in an overpayment of scheme pension.

Your scheme pension has now been recalculated using the correct GMP values.

How was the revised amount calculated?

We used the value of your pension at state pension age/GMP age, applied the correct GMP values, and rebuilt your pension applying the relevant pension increase. Your new pension amount is the  gross amount, before tax is applied. Your actual reduction should be less. If you need further information about tax you may wish to contact HMRC. 

I have more than one pension, how can I tell which one has changed?

Your GMP value is linked to your periods of scheme membership. The applicable GMP amount is applied to your relevant pension record.

Can I challenge the decision to reduce my pension?

We understand that any reduction to a pension is disappointing, however, we must ensure that members receive their correct pensions. As a result, we are unable to reverse this decision.

Why did the Scottish Government adopt a different approach to the rest of the UK for affected LGPS, Police and Firefighter pensioners?

A similar exercise undertaken in 2008/09 identified schemes that were found to be holding incorrect GMP data. Scottish Ministers chose to allow the pension in payment to remain unadjusted going forward for affected pensioners in the LGPS, Police and Firefighter schemes.

This was achieved by introducing legislation that provided for a new scheme award known as an increased Pension Entitlement (IPE), which reflected the GMP related overpayment. It was not possible to introduce an IPE for either the Teachers' or the NHS scheme as this would have required HM Treasury consent which was not given.

The view Scottish Ministers took in 2008 was that no pensioner should have their pension adjusted in these particular circumstances and that remains its view for similar cases that arise as part of this reconciliation exercise.

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