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 – which is a contributory flat-rate benefit.
• The additional State Pension – which depends on someone’s earnings during their working life since 1978.

When the additional State Pension was introduced, it was possible to contract-out. This meant that both the employer and employee paid a reduced rate of National Insurance and instead receive a workplace pension meeting certain requirements.

Contracting-out ended when the new single-tier State Pension replaced the basic and additional State Pensions in April 2016 as there was no longer an additional State Pension to contract-out from.

What is a Guaranteed Minimum Pension?

A Guaranteed Minimum Pension (GMP) is a minimum pension normally provided through a workplace pension scheme to people who contracted-out of the additional State Pension between 6 April 1978 and 5 April 1997.

Guaranteed Minimum Pensions Increase Order

Schemes providing GMP are required to annually increase GMP entitlement built up (accrued) between 6 April 1988 and 5 April 1997 in line with prices. This increase is capped at 3%. 

The Guaranteed Minimum Pensions Increase Order 2023 would specify that the minimum rate for GMPs is to be increased by the maximum amount permitted under the cap 3%. The increase in CPI for the appropriate review period is 10.1% (the 12 months to September 2022).

How do Guaranteed Minimum Pensions interact with the State Pension?

Someone’s GMP entitlement is deducted from the State Pension they receive. This calculation differs for the old and the new State Pensions:

• Under the additional State Pension someone’s GMP entitlement is deducted from the amount they would have accrued had they not contracted-out. The person is entitled to the remaining amount of the additional State Pension.
• When the new State Pension was introduced in April 2016 a check was done by comparing State Pension entitlement under both the pre-2016 and post-2016 systems after making adjustments for contracting out (PDF). The higher amount became that person’s “starting amount” – their entitlement in April 2016. After this their GMP entitlement continued to be increased and they will also be able to increase their new State Pension up to the full level.

Parliamentary and Health Service Ombudsman report

In 2019, the Parliamentary and Health Service Ombudsman (PHSO) published a report on its investigation of complaints by two individuals who said that the Department for Work and Pensions had failed to communicate that its State Pension reforms could have a negative long-term impact.

In response in August 2021, DWP 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 – which must be annually increased in line with prices – measured according to the Consumer Prices Index (CPI).