Understanding Guaranteed Minimum Pension (GMP)

If you’re reading this, it’s quite possible you’ve come across something called GMP — or Guaranteed Minimum Pension — in your pension paperwork. And if your first thought was “what on earth is that?”, you’re not alone.

We regularly speak to clients who find themselves in the same position, especially when they’ve tried to transfer their pension and have been told they can’t because of GMP. While GMP can be a valuable benefit, it isn’t always the right fit for everyone. In fact, many people find it quite restrictive, which is why understanding what it really means is so important.

So, what exactly is GMP in pensions?
GMP relates to pensions built up between 1978 and 1997, when many employees were “contracted out” of SERPS (the State Earnings Related Pension Scheme). In return, their workplace or private pension had to guarantee at least a minimum level of retirement income. This is the “minimum” that the GMP promises to provide.

On top of that, GMP comes with its own set of specific rules about how benefits must be paid and increased over time. While this was designed to protect savers, these rules can sometimes limit flexibility when it comes to managing your pension today.

What pensions have GMP?

You will most commonly see pensions with GMP from:

  • Final Salary Pension Schemes
  • Contracted Out Money Purchase Pension Scheme/Hybrid Schemes
  • Section 32 Plans. 

 

Most people are likely to only hear about it and are told that they can’t – either because the GMP is not “covered” (the fund value is too small in relation to the cost of the securing the GMP), or that they need advice from a Pension Transfer Specialist to enable them to transfer. 

Can I get rid of my GMP, and should I?

The short answer is, it depends. For some pensions with GMP it is possible to transfer out, “break the handcuffs” of the GMP and do something different with your pension, getting potentially more tax free cash and a pension more suited to you. However, for some policies transferring out is not possible, and you may be stuck with GMP.   

Contending with GMP, and even transferring pensions with GMP can feel like a bit of a minefield, but at Pensions and Annuities we are experts in GMP pensions – so much so we have our own separate website for it!

For more details on each of these questions and extensive information on pensions with GMP, visit our other website: gmppensions.co.uk. Alternatively contact us today on 01793 686393 to discuss your queries