About Your Benefits
Annual Increases
Your MPS benefits are made up of different elements. These may include Guaranteed Benefits, a Guaranteed Minimum Pension, bonuses awarded after privatisation and a value for money element.
Guaranteed Benefits
Guaranteed Benefits are the part of pension built up during service in the industry. Guaranteed Benefits receive full annual increases in line with any increase in the cost of living as measured by the Retail Prices Index (RPI). Any increase is normally applied by the Scheme in the autumn. In years where RPI is less than zero, as it was in 2009, for example, the Rules ensure that any fall in RPI will not result in a reduction in your total pension.
Guaranteed Minimum Pension
If you contributed to the MPS after 5 April 1978, the MPS undertook that, from State Pensionable Age, the Scheme would pay at least a minimum level of pension, called the Guaranteed Minimum Pension (GMP), which replaces a comparable benefit otherwise payable from the State.
Before April 2010, State Pensionable Age was 65 for men and 60 for women. From April 2010, State Pensionable Age for women will gradually increase so that by 2020, State Pensionable Age will have been equalised for men and women, at age 65.
The GMP is not an additional pension; it is a minimum level, calculated by the State. If you contributed to the MPS after 5 April 1978, the Scheme pension is compared against the GMP to ensure that it is no less than the GMP. If it is less, it would be increased to the same value as the GMP.
The GMP should not be confused with the Guaranteed pension element which forms part of the benefits payable by the MPS.
The Scheme pays all the increases on any MPS pension in payment before the GMP becomes payable. Once GMP becomes payable, the Scheme increases any GMP earned after 5 April 1988 by the increase in the cost of living up to 3% each year. The pension increase on the pre April 1988 GMP and any increase in excess of 3% on the post 1988 GMP will be added to your State pension by the Benefits Agency when your State pension increases. These increases are effective from 6 April each year.
Bonuses
Bonuses arise from surpluses from previous valuations. They are not generally increased in the autumn. The autumn RPI increase does not apply to bonuses, or to any Guaranteed Minimum Pension element.
Value for Money
In accordance with statutory requirements, from 6 April 1975 the MPS Rules incorporate a ‘value for money’ provision to ensure that the benefits due to members who left before normal retirement age represented fair return for their contributions. The value for money ‘test’ is carried out at normal retirement age. Your earned benefits, together with any increases due in deferment, are compared with the level of the value for money pension. The higher of the value for money pension, or the earned pension plus any increases added to the pension before it becomes due for payment, is payable. Where the value for money pension is higher, the Scheme Rules require that bonuses do not decrease when guaranteed pensions rise.
Pensions and inflation (or deflation)
The Rules provide for the Guaranteed Benefits to increase each year by the increase in the Retail Prices Index (RPI) measured over the period June to June.
In 2009, the change to the RPI was negative (-1.6%). The Rules of the Scheme state that pensions cannot be allowed to fall and the Guaranteed Pension will stand still even when the RPI falls.
The Rules also state that any increases in RPI in subsequent years must be offset against negative RPI in earlier years. This means that annual increases on Guaranteed Benefits can only begin again once future RPI increases are more than the previous falls, though the Trustees’ aim is always to try and increase pensions in line with any increase in the RPI by awarding bonuses (when funding permits) to top up the Guaranteed benefit entitlement.
Increases and bonuses
Bonuses added to pensions are not generally increased, though flat rate bonuses have been (and in the future will be when affordable) added to Guaranteed Benefits with the aim of keeping benefits increased in line with inflation.
Bonuses already awarded came from surpluses in the Scheme after 1994. Bonuses have been added to pensions in 1997, 2000 and 2006 when reviews showed that there were surpluses in the Scheme. Continuing payment of bonuses is not guaranteed; bonuses are likely to decrease if a review shows that there is a large deficit in the Scheme, although overall pension cannot be reduced in cash terms, as previously explained.
