What is GMP?

Your GMP is the minimum pension that your employer had to provide through an occupational pension scheme if they wanted to ‘contract out’ of the Additional State Pension (also known as State Earnings-related Pension Scheme (SERPS)) before 6 April 1997.

Broadly speaking, the GMP is a similar amount to the Additional State Pension you would have received had the Additional State Pension continued in operation.  However, it is paid through the Scheme, instead of by the Government.

The GMP is paid as part of the pension you receive from the Scheme.  For benefits earned before 6 April 1997, your pension payable from the Scheme must be at least equal to your GMP from GMP Payment Age (age 65 for men and age 60 for women).

Because of the way the rules for GMP work, even when the Scheme provides a higher benefit overall than the GMP, the GMP must be accounted for separately from the rest of your pension in the Scheme.  One reason for this is because once you reach GMP Payment Age, different annual pension increases are applied to your GMP and the rest of your pension.

What is GMP Payment Age?

Historically, State Pension payments started at different ages for men (65) and women (60).  As the GMP element of your pension was broadly equal to what the Additional State Pension/SERPS would have provided, the Scheme has to calculate benefits for this part of your pension assuming different starting ages for males and females.  Therefore, the age at which GMP becomes payable is 65 for men and 60 for women, even though men and women now have the same State Pension Age (currently 66 but rising to 67 by 2028).

What is the clarification that means this is being reviewed now?

In 2018, the High Court ruled that the inherent sex-based inequalities in GMP built up between 17 May 1990 and 5 April 1997 were unlawful.  Consequently, all UK pension schemes must, by law, ‘equalise’ benefits to eliminate the inequalities caused by GMPs so that they do not cause anyone’s pension to be lower as a result of their sex.  This is the legal clarification that means we have had to review your pension.

Is everyone affected by GMP equalisation?

No.  There are two reasons why your benefits might not be affected:

Your pension benefits don’t contain any GMP built up in the period 17 May 1990 to 5 April 1997 – for example due to not being in pensionable service during this time

The GMP benefits you are receiving are already higher than they would have been if they had originally been calculated in line with the opposite sex – therefore nothing is needed in addition to equalise the position.

What is GMP reconciliation?

HMRC recommended that all occupational pension schemes (including the Scheme) should check their GMP data against the records held by HMRC.  If this showed that our GMP data in respect of you did not match the data held by HMRC, we were required to update our records and correct (rectify) your pension.  This is a separate issue to GMP equalisation.

Why might there be discrepancies in GMP records?

Calculating a GMP is quite complicated but broadly it is based on historic earnings figures.  Those earnings figures were supplied to both the Scheme and HMRC by your employer’s payroll department.  This information was typically provided at different times which could lead to differences in the information used to calculate the GMP.  In addition, this data was not transferred electronically so there could have been clerical, typographical and transposition errors made.  Complications can also arise when GMPs are transferred from one scheme to another.  This means that HMRC may hold a different GMP record for you than the Scheme holds.  Where there are discrepancies, corrections may need to be made to HMRC’s records or to the Scheme records.

This is known as GMP rectification.

Will my dependant’s pension(s) change?

Any dependant’s pension payable on your death will be based on your (correct) pension after GMP equalisation and/or rectification.

Are there any tax limitations I should be aware of?

The Government had previously set limits on the pension savings that you can have without losing tax relief.  The relevant limit in the context of GMP equalisation is the Lifetime Allowance (LTA).  As GMP equalisation may result in a small increase in pension, you may have a higher pension amount to be measured against the LTA.

The LTA has now been abolished.  This was done with effect from the 2024/25 tax year.  Under current tax rules, there should therefore be no impact on your LTA.

Tax matters are complex, and we cannot cover all the issues here.  If you have concerns about how the tax limitations may affect you, we recommend you take financial advice.

Does this affect my tax and state benefits?

There’s a chance that an increase to your pension affects benefits you’re getting, such as Pension Credit.  Also, if your current pension puts you very close to a higher income tax band, an increase might push you into paying a higher rate of tax on the extra income.  If you have any questions about tax, please contact HMRC or speak to a financial adviser.

The one-off payment is paid all in one go but is actually in respect of multiple past years of pension.  Paying the back-payment as a single lump sum may mean you pay a higher rate of tax compared to if it were paid across several years.  You can speak to HMRC to see if you should pay a lower amount of income tax.  Isio cannot help with this as they do not have details of your personal tax position.

A year-by-year breakdown of your back-payment is available from Isio on request.  HMRC can be contacted by calling 0300 200 3300 / +44 135 535 9022.

How will I know that the pension is correct after this exercise and that there won’t be any future changes?

Every effort has been made to ensure that your pension benefits are correct.  The Trustee does not envisage the need to undertake further GMP checks, but if a further change is required to your pension, the Trustee will write to you at the time.