Cookies on GOV. UK We use some essential cookies to make this website work. Accept additional cookies Reject additional cookies View cookies. Hide this message. Home Pension scheme administration. Print this page. Revaluation of earnings factors Earnings factors must be revalued by using the yearly Social Security Revaluation of Earnings Factors Order. Full revaluation Where a section revaluation is used, the earnings factor should be revalued using the section order issued in the last complete tax year before the tax year in which GMP payable age is reached, or death if earlier.
The amount of the fixed rate is: Compound for terminations occurring Percentage From 6 April 3. If revaluation of a GMP is required before GMP payable age, for example, a transfer value has been requested or because of pension sharing on divorce, the GMP should be revalued: from the tax year following that in which contracted-out employment terminated or post , pensionable service ended to the tax year in which the event occurs For example, a member who left contracted-out employment on 25 October the to tax year requests a GMP value on 1 February to tax year — the GMP amount calculated at date of leaving should be revalued for 6 years using a compound revaluation rate of 4.
Fixed rate revaluation — GMP payable age calculation example Where fixed rate revaluation is used the GMP amount at date of leaving is revalued by the relevant compound fixed percentage for each following tax year up to the last complete tax year before the tax year in which GMP payable age is reached 65 for men and 60 for women.
Published 19 December Brexit Check what you need to do. Explore the topic Pension scheme administration. Is this page useful? Maybe Yes this page is useful No this page is not useful. Thank you for your feedback. Report a problem with this page. Since April pension schemes have been able to contract out and in return for providing a minimum level of benefits i. This all sounds fine in principle, but as might be expected there is a good deal of administrative work that goes with contracting out, involving the employer, pension administrators and the National Insurance Contributions Office NICO of the Inland Revenue.
This is known as GMP reconciliation. From April , a one-off calculation determines the pension amount that a retiring individual receives. If an individual has been regularly contracted out, they will receive the basic state pension figure. A new single-tier State pension is being introduced from 6 April for members who will reach State Pension Age after that date. This is known as COPE. For each individual the Department for Work and Pensions DWP will compare entitlement under the old and new arrangements at 6 April to determine a starting amount for the single-tier State pension.
The better of these two amounts will be used to determine the State pension an individual receives and in most cases there will be an opportunity to add to this amount by paying NICs in future years. One of the changes is breaking the link between occupational schemes and the State pension for future service, i.
For members who have been contracted-out, a deduction will be made to take into account any periods of contracted-out employment and any GMP that has been earned. This statement should also include an estimate of your starting amount under the single-tier State pension. The GMP calculation is complex and is based on contracted out earnings i. Prior to 6 April contracted out contributions rather than earnings are used.
When a member leaves a scheme the GMP is calculated as a weekly amount. This amount is then revalued to protect it against inflation to age 65 men or 60 women. The GMP must be increased for each complete tax year in the period from leaving pensionable service to retirement or death.
This is most common in public sector pension schemes. This allows for an administrator to calculate the likely amount of GMP payable at retirement as the level of increase is already known. This could favour either gender and it could change during retirement. If you were contracted out for a period of service, your State pension payable will be adjusted.
If you retired before 6 April , then you will receive your basic state pension entitlement subject to meeting qualifying criteria. You may also be entitled to some additional earnings related pension, however for any period you were contracted out of the SERPS, the value of your GMP will be deducted from the full SERPS entitlement you would have received, had you not been contracted out.
If you retire after 6 April the single tier pension will be adjusted to reflect the period you were contracted out of the SERPS. Following the European Court of Justice ruling on 17 May Barber vs Guardian Royal Exchange Assurance Group , occupational pension schemes were obligated to provide equal benefits to men and woman from this date onwards.
As a result of the uncertainty, most schemes did not equalise for the impacts of the GMP element of pension. Instead most schemes chose to only equalise any non-GMP elements of pension. Prior to the judgment, the law was not clear about whether GMPs should be equalised and, if so, how this might be done in practice.
The recent Lloyds Banking Group case went to the High Court to decide whether GMPs need to be equalised and, if so, the calculation method to use to adjust members' benefits. While the judgment relates to the Lloyds Banking Group schemes, it is expected to provide a legal precedent that affects other schemes as well. The judgment was announced on 26 October and confirmed that GMP equalisation is required. It provided the Trustees with a number of potential approaches for achieving this.
The judgment from the High Court is likely to affect many UK pension schemes with 'defined benefits'. Members could be affected if they are in one of these schemes and had built up a GMP between 17 May and 5 April This will include some 'defined contribution' schemes where there is an underpin benefit equal to the GMP. Members who transferred in benefits from a previous scheme which include GMP built up over this same period will also be impacted.
Other members are unlikely to be affected by the judgment. The Court judgment could affect the pensions for both men and women, and both pensioners and non-pensioners.
There are still a number of unresolved matters following the judgment including the position on historic transfers out. Any underpayment from previous payments made will also need to be equalised, and some members may be due a back payment. This will depend on their individual circumstances and will require detailed calculations to determine.
There were various methods discussed by the High Court in order to equalise benefits. Statutory limitation periods on back payments do not apply in relation to GMP equalisation. However, Scheme rules should be reviewed to determine if any limitation periods apply and if the Trustees have the power to limit potential back payments for members who have been previously underpaid.
It is important for Trustees to also understand the implications of limiting back payments and you should speak with your actuarial adviser and legal adviser to understand the implications further before making any decision.
Data The data used for GMP equalisation purposes is different from the data used for day-to-day administration and therefore may not be readily available. It is important to capture all the data used as part of GMP rectification, so that this can be used for GMP equalisation calculations. It would also be worth the trustee undertaking checks to ensure whether any further data is required to perform the GMP equalisation work, making sure that all the necessary preparation has been done ahead of the calculations being performed.
Method, calculations and policy decisions Trustees of schemes will need to make policy decisions regarding the method of equalisation and how this will be implemented. There are still a number of legal uncertainties around GMP equalisation that need to be resolved before GMP equalisation can be finalised, but following the Lloyds judgment planning can start and key policy decisions can start to be made by Trustees on methodology, treatment of back payments, and dual record keeping or conversion.
Member communications Given the complicated nature of GMP equalisation, and that this exercise will directly impact member benefits, the member communication will be crucial to the success of this project.
It is important that members are given the key information that directly impacts them, delivered in a clear way that they are able to understand.
It is important that trustees think about the communication aspects of GMP equalisation throughout the project to help aid decision making. There will be many different parties involved including members, actuaries, lawyers, trustees and administrators in all of the key steps for GMP equalisation planning, data, policy decisions, calculations, updating processes, and member communication as examples. Good project management will be key to a successful GMP equalisation project to help ensure the project runs smoothly.
Following conversion, trustees are no longer required to track and monitor GMPs. However, to the extent that the Lloyds judgment has resolved some of the uncertainty, many schemes are likely to revisit GMP conversion as an option for implementing GMP equalisation and simplifying GMPs going forward. The method of converting GMP benefits requires an actuarial value calculation to convert existing benefits into a new form.
The current conversion legislation has not been greatly used to date and further guidance is expected from DWP about how they envisage conversion being used in practice. Schemes may find conversion attractive as it simplifies scheme benefits and removes the restrictions around GMPs.
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