Guaranteed Minimum Pension (GMP) increases

The State Pension and contracting-out

For people who reached State Pension age before 6 April 2016, the State Pension has two tiers:

• The basic State Pension is a flat-rate benefit based on their record of paying National Insurance contributions over their working life.
• The additional State Pension is based on someone’s earnings during their working life since 1978.

People could contract-out of the additional State Pension. This meant both employers and employees paid a reduced rate of National Insurance contributions. Instead of building up their additional State Pension, the employee received a workplace pension that met certain requirements.

Contracting-out stopped in April 2016 when the new single-tier State Pension replaced the basic and additional State Pensions. There was no longer an additional State Pension to opt out from.

What is a Guaranteed Minimum Pension?

A Guaranteed Minimum Pension (GMP) is for people who contracted out between 6 April 1978 and 5 April 1997. Employers usually provided a GMP through their pension scheme. Contracting out continued after 1997, but employers needed to provide pensions meeting certain requirements rather than a GMP.

Guaranteed Minimum Pensions Increase Order

Each year, schemes providing a GMP must increase them. Any GMP entitlement built up (accrued) between 6 April 1988 and 5 April 1997 increases in line with prices. This increase is capped at 3%. 

The Guaranteed Minimum Pensions Increase Order 2025 would increase the minimum rate for GMPs by 1.7%. This is in line with prices measured by the Consumer Price Index for the year to 30 September 2024.

How do Guaranteed Minimum Pensions interact with the State Pension?

Someone’s GMP entitlement is deducted from their State Pension. The calculations differ for the old and the new State Pensions:

• For the additional State Pension, the GMP entitlement is deducted from the amount someone would have received if they had not contracted-out. The person keeps the remaining additional State Pension.
• The government introduced the new State Pension in 2016. A check compared someone’s entitlement under both systems adjusted for contracting out (PDF). The higher amount became their State Pension entitlement in April 2016. After this they could increase their new State Pension up to the full level. Their GMP entitlement continued to be increased in line with prices.

Parliamentary and Health Service Ombudsman report

In 2019, the Parliamentary and Health Service Ombudsman published a report on its investigation of complaints about the transition to the new state pension. They said that the Department for Work and Pensions failed to communicate that State Pension reforms could have a negative long-term impact.

In response in August 2021, the department published a factsheet on GMP and the effect of the new State Pension.

Public service schemes

There are specific legislative requirements applying to public service pensions. These must increase annually in line with prices as measured by the Consumer Prices Index.