If you are over Guaranteed Minimum Pensions (GMP) age (65 for men and 60 for women) and you, or your spouse, was a contributing member of the Scheme after April 1978, then your pension is likely to include a GMP element. The following example explains how your pension elements would increase by the increase in the Retail Price Index (RPI) for 2018 - 3.4%. If your pension does not include a GMP element, please see the example calculation for members under GMP age.
Part of your Guaranteed pension is known as the Guaranteed Minimum Pension (GMP) which is the equivalent of the pension a member would have earned had they been in the State Earnings Related Pension Scheme (SERPS). Members of the MPS were ‘contracted out’ of SERPS and paid lower NI contributions as a consequence. Part of the arrangements for contracting out means that the MPS cannot pay a pension lower than that a member would have earned in SERPS had they not been contracted out. This ‘Guaranteed Minimum Pension’ forms part of their overall MPS guaranteed pension and has different pension increase arrangements to the rest of the MPS pension once a member reaches age 65.
This is further complicated by the GMP being in two parts, which both have different increase arrangements:
• The GMP earned before 6 April 1988 does not receive any increases from the Scheme once a member reaches age 65.
• The GMP earned after 6 April 1988 is increased by the Scheme each year by CPI up to a maximum of 3% a year. These are the increases that by law MPS has to apply in April each year to that element of pension.
Once a member reaches age 65, the remainder of the Guaranteed pension will be increased each autumn by the increase in the RPI.
For example - the increase for 2018 is 3.4% and will be applied from 1 October 2018. The pension increase will therefore be calculated as follows:
|Pension element||Pre increase weekly rate||Rate of Increase||New pension rate from 1 October 2018|
|Guaranteed pension (excluding GMP)||£49.50||£49.50 x 3.4 % = £1.69||£51.19|
|Pre 1988 GMP||£13.00||-||£13.00|
|Post 1988 GMP||£2.50||-||£2.50|
|Reducing bonus||£13.00||£13.00 - £1.69 = £11.31||£11.31|
|Level bonuses granted from 2012 to 2017||£6.00||-||£6.00|
|New level bonus granted in 2018||£0.00||£49.50 x 4.2%= £2.08||£2.08|