Pension: GMP members who contracted out of state pensions may be owed £32k – full details
PENSION schemes can come in many shapes and sizes, with Guaranteed Minimum Pensions (GMP) being among them. These schemes were offered to those who were members of final salary (defined benefit) schemes between 1978 and 1997 and holders of these schemes could be entitled to huge pay-outs.
Guaranteed Minimum Pension rules can be complicated but in a nutshell, members of final salary schemes had the option (or in many cases, were automatically forced) to opt out of part of the state pension, known as the State Earnings Related Pension Scheme (SERPS). This was known as being contracted out and in an attempt to ensure members would not miss out, the government guaranteed them a minimum pension amount which would be similar to what would have been received should they have stayed in SERPS.
However, certain elements of these plans proved controversial and in 2018, the High Court in England ruled all GMP benefits in UK pension plans must be equalised for males and females.
According to some estimates, this ruling impacted around 80 percent of all defined benefit schemes.
XPS Pensions is at the forefront of these equalisation changes and their work revealed many could be entitled to substantial sums.
Their work on GMP equalisation projects revealed pensioners could be owed as much as £32,000, with over half of schemes owing individual pensioners £10,000.
Pension pay-outs may emerge in the coming months
All schemes worked on thus far owe at least one pensioner a minimum of £500.
Vicky Mullins, the GMP equalisation lead at XPS Pensions, commented on the current state of affairs: “As we produce GMP equalisation calculations for more and more schemes, we are getting a clearer picture of the amounts that are likely to occur.
“Although the largest payments are eye catching, it is also interesting that even schemes that consider themselves largely unaffected owe some pensioners over £500 each, cash which would be most welcome to many.
“GMP equalisation affects almost every defined benefit pension scheme in the UK and is expected to impact more than five million members.
“Pension schemes also now need to widen the scope of the GMP equalisation exercise to even more members following the supplementary judgment released last week.
“The change details each scheme’s responsibility to correct transfer values paid back to 1990 for the impact of GMP equalisation.”
Vicky went on to examine the recent judgement on GMPs which expanded the rules: “The supplementary judgment does not change what schemes need to do for their current members to correct their benefits, however it does add a whole new set of members that need consideration.
“Finding and communicating with these members may be difficult.
The changes will affect those who contracted out of certain state pensions
“Pensions schemes will need a process to find, verify and get payments to each of them.
“As schemes review their business plans for 2021, it is vital to ensure getting GMP equalisation done is firmly on the agenda to get these back payments paid to members promptly.”
The new ruling, which occurred on November 20, will force companies to revaluate their pension pay-outs and at the time Ian Browne, a retirement planning expert at Quilter, explained the monumental challenge scheme managers are about to be faced with: “This is going to be a complete minefield as schemes will need to sort through the archives to find records up to three decades old.
“Having blown the dust off they will need to identify which scheme members would have benefited had GMP equalisation taken place when calculating their transfer value, and either reach out to those people to make them whole, or ensure that they can at least do so in the event of a claim.
“There is no doubt that this process is going to take time and will leave a lot of pension schemes reeling.
“The hugely complex process will be both costly and time consuming for the schemes and their sponsoring employers.
“For the public it will undoubtedly leave pension scheme members, many of whom will now be retired and who may have long-forgotten the terms of their pension 20-30 years ago, scratching their heads at home wondering whether they might be due a payment.”
Fortunately, the government provide a GMP calculator tool on their website which can help administrators work out what is owed.
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