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 the clarification in the law?

This clarification means that all pension schemes have to check members’ pensions to make sure that men and women are not being paid a different amount of pension just because of their sex.

This legal change applies to the part of your pension called ‘Guaranteed Minimum Pension’ or ‘GMP’ that you built up between 1990 and 1997. In most cases, GMP is only a small part of someone’s pension.

The rules for how GMP built up were based on the way the State Pension worked at that time, which was different for men and women. As a result, men and women could build up different amounts of GMP, even if they worked for the same period of time on the same pay.

Sometimes this could mean a man is better off, and sometimes it could mean a woman is better off.

Why is my GMP 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.

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).

How does GMP impact my pension increases?

The GMP is split into two parts:

Pre-88 GMP: Built up between 6 April 1978 and 5 April 1988.

Post-88 GMP: Built up between 6 April 1988 and 5 April 1997.

Once GMP is in payment, different legal requirements apply to each part in relation to increases:

There is no legal requirement to increase the part of your GMP built up before 6 April 1988.

The part of your GMP built up after 5 April 1988 will increase annually from GMP Payment Age in line with inflation, capped at 3% per year.

These legal requirements set the minimum increases, but your scheme may apply further increases.

Any pension amount above the total GMP will increase according to the rules of your scheme.

Is everyone affected by GMP equalisation?

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

Your pension benefits do not 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.

Is the rest of my current pension already equalised?

The court judgments concerning equalisation do not require the equalisation of any benefits built up before 17 May 1990. All non-GMP benefits built up in the scheme on and after 17 May 1990 have been equalised, although this may be scheme specific.

What is GMP reconciliation?

HMRC recommended that all occupational pension schemes 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?

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 Government abolished LTA tax charges from 6 April 2023, with benefits over the LTA taxed as pension going forward (and therefore LTA charges are not currently expected to arise in relation to tax years after this date). However, in assessing the effect of any changes to your benefits it is the tax rules in force at your retirement date that apply.

The abolition of LTA tax charges will not change the rules applicable for assessing tax that might be due for events taking place in tax years before 6 April 2023. Following GMP equalisation, in rare cases, an increase to a member’s starting pension could result in a new or increased LTA charge (in respect of a previous tax year).

If you were close to or over the LTA when you retired (considering all your pension savings but excluding the State Pension), please contact the plan administrators for more information and as soon as possible.

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.

Taxation of interest element of back payment

Some members are eligible for a one-off back-payment. If this is the case, while that part of your back payment representing past arrears of pension will be taxed through PAYE, in accordance with HMRC guidance, if you live in the UK, the interest payable on your arrears will not be paid through PAYE. Instead, it will be paid to you separately, and tax will not be deducted. Please note, however, that interest payments are subject to income tax at your usual rate, unless they fall within your tax-free Personal Savings Allowance. You may therefore need to report these interest payments to HMRC in your Self-Assessment at the end of the tax year to ensure the correct amount of tax is paid.

If you are not a UK resident, the position is slightly different and the interest payable on your arrears will be paid to you after deducting your usual tax rate. You are responsible for paying the correct tax under your local authority.

What is included in my back payment?

If you are eligible, the one-off back-payment is the extra pension that we have identified that you should have been paid in the past. This amount includes interest, and the payment is subject to income tax.

This back payment allows for:

any pension income you have missed since receiving your pension from the scheme as a result of the inequality between male and female GMP benefits,

any pension income your late spouse or partner may have missed when receiving their pension from the scheme before they died as a result of the inequality between male and female GMP benefits,

an allowance for interest over the relevant period.

How will I know that the pension is correct after this exercise?

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.