If you only paid into the Local Government Pension Scheme (LGPS) after 1997, you will not have a Guaranteed Minimum Pension (GMP) amount. However, if you transferred some pension rights in from another contracted-out scheme that you paid into before 1997 you may have a GMP.
If you paid into the LGPS before 1997, and you have reached State Pension age (SPa), you will probably have a GMP.
Definition of a GMP
From 6 April 1978 to 31 March 2016 the State Pension was made up of 2 parts:
- basic pension
- additional pension, known as the State Second Pension (S2P) and previously known as the State Earnings Related Pension Scheme (SERPS).
Occupational pension schemes could ‘contract-out’ of the S2P and in return members pay a lower rate of National Insurance contributions. The Local Government Pension Scheme (LGPS), along with all public service pension schemes, is contracted-out of the S2P.
The LGPS must ensure that the pension paid to a member is as much as they would have been paid under S2P. This is known as the Guaranteed Minimum Pension (GMP). It isn’t a separate pension; it’s simply the minimum amount your LGPS pension must reach. Usually your LGPS pension is more than your GMP.
With effect from 6 April 1997 Guaranteed Minimum Pensions no longer accrued.
GMP amount
Your GMP is calculated by the Department for Work and Pensions (DWP) and will be notified to you with your State Pension entitlement. The DWP will inform us of the amount and provide an annual update. Your GMP is paid as part of your Local Government pension, and not in addition to it. In correspondence from the DWP they may refer to the GMP as Contracted out deduction (COD).
GMP and pension increase
If you have a GMP amount all the pension increase is still paid but, instead of it all being paid with your LGPS pension, it is paid partly with your LGPS pension and partly with your State Pension.
Government legislation changed in 1988 so the GMP is made up of 2 elements:
- pre 1988 and
- post 1988 amounts.
The table shows what pension increase is paid on the different parts of your pension and who is responsible for paying it.
| Part of the pension | How much pension increase is paid | Where it is paid | Who is responsible for paying it |
|---|---|---|---|
| Basic LGPS pension, less pre and post 1988 GMP amount | Total % increase | With LGPS pension | Cheshire Pension Fund |
| Pre 1988 GMP amount | Total % increase | With State Pension | DWP |
| Post 1988 GMP amount | 3% or total % increase if lower than 3% Any remaining % over 3% | With LGPS pension With State pension | Cheshire Pension Fund DWP |
Example of how pension increase is calculated and paid if you paid into the LGPS before 1997 and have a GMP
Tim retired last April at age 65 and was awarded a LGPS pension of £3,000 a year.
The DWP notified Tim that he had a GMP amount of £1,000, made up of £400 for pre 1988 and £600 for post 1988. This is the minimum amount of pension the LGPS must pay him. His LGPS pension is much more. The GMP amount is included as part of the LGPS pension.
Tim’s total pension of £3,000 is made up of these parts:
Basic pension £2,000
Pre 88 GMP £ 400
Post 88 GMP £ 600
£3,000
The pension increase awarded was 3.5%. The increase was calculated and paid like this:
| Part of the pension | How much pension increase is paid | Where it is paid | Who is responsible for paying it |
|---|---|---|---|
| Basic LGPS pension less pre 1988 and post 1988 GMP amount (£3,000 – £400 – £600) | 3.5% of £2,000 = £70 | With LGPS Pension | Cheshire Pension Fund |
| Pre 1988 GMP amount (£400) | 3.5% of £400 = £14 | With State Pension | DWP |
| Post 1988 GMP amount (£600) | 3% of £600 = £18 0.5% of £600 = £3 | With LGPS pension With State pension | Cheshire Pension Fund DWP |
All the pension increase totalling £105 is paid to Tim. However, £88 is paid with his LGPS pension and £17 is paid with his State Pension.
The government changed the State Pension system from 6 April 2016. If you reached State Pension age before 6 April 2016 you are unaffected.
The basic and additional state pensions were replaced by a flat-rate, single-tier State Pension. As a result of this, the rules about increases on Guaranteed Minimum Pensions (GMPs) are different.
The government stated that, as an interim solution, those who reach State Pension age on or after 6 April 2016 and before 5 April 2021 continue to receive full increases on their GMP.
The government is expected to address this issue in the longer term. When we know more about this we will let you know.