Guaranteed Minimum Pension Explained - What is GMP?

You might have a guaranteed minimum pension if you were a member of a contracted out final salary scheme before April 1997. A GMP pension should pay a level of income that is at least comparable with how much you would have received if you had been contracted into SERPS.

Tim Leonard Last updated on 22 December 2021.
Guaranteed Minimum Pension Explained - What is GMP?

If you were a member of a contracted out final salary (or defined benefit) pension scheme between 6 April 1978 and 5 April 1997, there is a chance you will have a guaranteed minimum pension, or GMP. It is so-called because a GMP pension must guarantee to pay a minimum level of benefits at least equal with the income you would have received if you had been contracted in, and paid into, the State Earnings Related Pension Scheme (SERPS) – a scheme that gave workers the chance to top up their state pension.

» MORE: What is a SERPS pension?

Could I have a GMP pension?

A guaranteed minimum pension only had to be offered where an employer automatically contracted out its employees from a salary-related scheme. The main incentive for companies (and workers) to do so was to benefit from reduced National Insurance contributions.

If a company offered a defined contribution workplace pension or an employee used a personal pension to contract out, GMP is not applicable.

When is GMP payable?

A GMP is payable from age 60 for women and 65 for men. The changes made to the state pension age in recent years do not apply to a guaranteed minimum pension.

How can I take my guaranteed minimum pension?

A GMP must always be paid out through an annuity, providing an income from the pension for the rest of your life.

You cannot take a tax-free lump sum directly from a guaranteed minimum pension (even though GMP benefits can be counted as part of any calculation of how much tax-free cash you’re allowed).

» MORE: Taking a pension tax-free lump sum

Can I transfer my GMP?

If you want more options for accessing your pension at retirement, it is usually possible to transfer a pension consisting of GMP rights. However, the guarantees and death benefits associated with your GMP pension are likely to be lost if you do.

For this reason, you will need to talk to a qualified pension adviser before proceeding.

» COMPARE: Personal pension providers

How is GMP calculated?

How much guaranteed minimum pension you’re entitled to depends mainly on how long you were a member of the pension scheme, the amount of benefits you built up pre-1988 and post-1988, and how much you paid in National Insurance contributions.

However, with various increases potentially payable depending on when benefits were accrued and can be taken, the calculation of GMP benefits is complicated. By far the best way to find out your GMP entitlement is to contact your pension scheme.

» MORE: How to get a pension statement

What is GMP revaluation?

A guaranteed minimum pension will undergo a revaluation each year up until it can be drawn to counter the effects of inflation. How much a GMP revaluation amounts to will depend on your age and whether you are still an active member of the pension scheme.

Once a GMP pension is in payment, further increases in how much you receive might be delivered by either the pension scheme, the state or both.

A scheme must ensure that any guaranteed minimum pension accumulated between 6 April 1988 and 5 April 1997 rises by the lower of inflation or 3%. However, GMP from before 6 April 1988 does not need to increase when it is being paid.

How does GMP affect my state pension?

Whether you receive any Increases from the state once your GMP is in payment depends on when you reach state pension age (SPA).

If your SPA is before 6 April 2016, meaning you receive the old basic state pension, your GMP should rise in line with prices. This will be paid via an increase in your additional state pension.

If your SPA is after 6 April 2016, so you receive the new state pension, there will be no rise in the GMP you’re paid.

What is a reference scheme test?

After 6 April 1997, employers had to meet a new reference scheme test – which replaced the GMP – in relation to minimum pension benefits if they wanted to contract out employees. As a result, it wasn’t possible to accrue GMP rights after this date. Instead, contracted out benefits built up in this way were called section 9(2B) rights.

Contracting out as an option ended altogether in April 2016 with the introduction of the new state pension.

» MORE: The state pension explained

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About the author:

Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more

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