What is Guaranteed Minimum Pension (GMP)?

Your GMP is part of your pension from the Plan if you were a member between 6 April 1978 to 5 April 1997. It replaces part of the State Pension.

Before 2016, the State Pension was made up of two main components:

• A flat-rate Basic State Pension and
• A second level of State Pension that was linked to earnings, called the State Earnings Related Pension Scheme (SERPS), later the State Second Pension (S2P)

If you were a member of the Plan between 6 April 1978 and 5 April 1997, you will most likely have been ‘contracted out’ of SERPS. This meant that both employers and employees would pay lower National Insurance contributions, and the Plan must provide a certain level of benefit in place of the SERPS pension the employee would be giving up.

GMPs were introduced to ensure that employees who were contracted out of SERPS still received a minimum level of pension benefits. The GMP amount is calculated based on your earnings and the number of years you were contracted out. It is designed to provide a similar level of benefits to what you would have received under SERPS.

---

The High Court decision to make benefits equal

In a series of cases involving the Lloyds Banking Group pension schemes, the High Court made some important decisions about pension benefits that will affect some Plan members. The judgment affects members who were contracted out of SERPS between 17 May 1990 and 5 April 1997.

During this period, the State Pension age (SPA) for men and women was different – 60 for women and 65 for men. This meant that both the State Pension and the GMP built up in the Plan were unequal between men and women because both were linked to the SPA. However, the judgments confirmed that pension schemes like the Plan, who have members whose pension includes a GMP, need to provide equal benefits for men and women in respect of pensionable service between 17 May 1990 and 5 April 1997. The exercise to implement this is known as GMP equalisation (GMPe).

The Trustee has been working with its advisors to decide how best to implement GMPe in relation to the Plan. In connection with that exercise work has been carried out to check all members’ GMP benefits to determine whether any adjustments are required to implement GMPe.

---

Frequently asked questions

• What is GMP equalisation?

  The High Court has ruled that pension schemes like the Plan, who have members whose pension includes a GMP, need to provide equal benefits for men and women in respect of pensionable service between 17 May 1990 and 5 April 1997. The exercise to implement this is known as GMP equalisation (GMPe).

• How do you equalise GMP?

  We calculate your GMP as if you were a member of the opposite sex (so if you are female, we will work it out as if you were male). Everything else about the calculation will stay the same: for example, your age, salary, and the date you retired or left the Plan. If you are receiving a dependent’s pension, then the calculation will be based on the original member’s GMP. Once both calculations have been completed, the higher pension amount is used.

  Once your GMP has been reviewed and any adjustments have been made to equalise your Plan benefits, any pensions in payment will continue to be adjusted throughout retirement to ensure the correct amount continues to be payable (including any dependants’ pensions that may be payable after a member’s death).

  Please note that you will always receive the higher amount as a result of any adjustment.

• Which members could be affected?

  The High Court decision is likely to affect some members, some beneficiaries relating to former members, and some former members who have a GMP built up between 17 May 1990 and 5 April 1997. 

  It could affect men and women, pensioners and non-pensioners and former members who previously transferred their benefits out of the Plan, or who have died with an unequalised GMP. 

  We are currently reviewing the GMP equalisation adjustments required in respect of pensioners, dependants and deferred members.

• Are spouse/civil partner or dependant’s pensions affected?

  Yes, if the original member’s pension included GMP, you could be affected. We will contact you if your benefits may require an adjustment, but please note that your pension will not be reduced as a result.

• If I am affected, what could I get?

  Some pensioners and dependents may receive:  

  • an increase to their pension in payment.
  • a one-off additional payment to cover any arrears owed to cover the uplift the member should have received since they originally took their benefits. Where this is the case, the payment will include an amount in respect of interest.
  • both an increase to their pension and a one-off payment.
• As a pensioner, how did you review my Plan pension?

  Your GMP benefits between 17 May 1990 and 5 April 1997 were calculated as if you were a member of the opposite sex (the ‘alternative’ pension). Everything else about the calculation was the same: for example, your age, salary, and the date you retired.

  The calculation told us:

  • whether your current pension was lower than the alternative pension would be – and if so, we increased your current pension; and
  • whether you received a lower pension than the alternative pension in past years – and if so, a one-off additional payment (which included interest) was due to make up the difference.

  When working out your annual pension increase in future, we will check that we are treating benefits equally for men and women and allow for this in your pension.

• What if I am an active or deferred member?

  If you are an active member, when you leave the Plan your GMP benefits will be calculated to make sure they meet the requirements of GMP equalisation.

  If you are a deferred member, we will retain the information in respect of your pension at leaving but also record the benefits in the Plan as if you had built up your GMP between 17 May 1990 and 5 April 1997 as a member of the opposite sex (alternative pension). When you apply for retirement from the Plan, you will receive a quotation based on the higher value of either your pension or the alternative pension at the date of retirement. Once your pension is in payment it will continue to be reviewed and adjusted throughout retirement, to ensure that year-on-year you continue to receive a pension which reflects the higher of the value of your pension and the alternative pension.

  If you want to transfer out of the Plan, the transfer value basis was updated in October 2022 so that any transfer quotations you are provided with now reflect any adjustment required to your benefits on account of GMP equalisation.

• You wrote to me before about changing my GMP, will this affect GMP equalisation?

  No, this would not affect GMP equalisation. The Trustee first had to check the GMP amounts for all members of the Plan were correct. It did so by comparing Plan records with the information held by HM Revenue & Customs (HMRC). This exercise was known as GMP rectification. The Trustee has now completed GMP rectification, and any affected members were contacted.

• What tax implications are there if I receive an increase to my pension or receive a one-off payment?

  If your pension is increased, or you receive a one-off payment, this may affect your tax position because:

  • If your pension is increased, this could push your yearly income into a higher income tax bracket.
  • Similarly, if you receive a one-off payment, this could push your income for the year into a higher tax bracket. This may mean you have to pay more tax for the year in question than if you had received the right level of pension in the first place. If this happens, you could apply to HM Revenue and Customs (HMRC) to spread the tax that is due over the previous years to which the additional payment relates. You may also be due a refund of the tax. You can claim this using their online form at: www.gov.uk/claim-tax-refund

  Please note that your tax position is your responsibility, and you must contact HMRC yourself – we cannot make the claim on your behalf. The Trustee is not able to provide members with tax advice regarding their personal tax affairs.

  To find out more, please visit HMRC’s website at: www.gov.uk/tax-overpayments-and-underpayments

• What are the implications for my historic Lifetime Allowance (LTA) usage if I receive an increase to my pension or receive a one-off payment?

  If you took your pension benefits before 6 April 2024, we may need to recalculate the amount of Lifetime Allowance (LTA) you used up when your pension was put into payment. This is because the increase to your pension may have been applied to your benefits from the date you started receiving the pension. If we need to update your LTA, this revised LTA amount will be used to calculate your Lump Sum Allowance (LSA) usage.

  You will be notified if your LTA amount has been changed because of GMPe. 

  Also, although very rare, if you have Enhanced Protection, you could lose it in the future due to the rules around GMP. Please make sure you let the pensions team know if you do have any form of LTA protection, unless you have provided this confirmation previously.