Guaranteed Minimum Pension

HMRC guidance confirms that 'Defined benefit pensions schemes that were Contracted-out Salary Related (COSR) schemes before contracting-out ended on 6 April 2016 need to provide a Guaranteed Minimum Pension (GMP) to members for contracted-out service between 6 April 1978 and 5 April 1997', with the GMP 'payable at age 60 for a woman and at age 65 for a man'. Separate DWP guidance explains that a GMP 'only applies to people who were contracted out of the Additional State Pension from 6 April 1978 to 5 April 1997', and that the GMP paid by the workplace scheme is intended to be broadly equivalent to, or more than, the additional State Pension the member would otherwise have accrued had they not been contracted out.

Because contracting-out on a salary-related basis ended on 6 April 1997 (with all contracting-out ending on 6 April 2016 when the single-tier State Pension was introduced), no further GMP can accrue after 5 April 1997. Since the new State Pension replaced the separate basic and additional State Pension calculations, the government stopped paying the living-cost increases on GMP that it previously covered through the Additional State Pension for those reaching State Pension age on or after 6 April 2016, shifting responsibility for indexing GMP built up from April 1988 (capped at 3%) onto the occupational scheme itself.