How to make sense of GMP clawback

  • To understand how the GMP clawback problem started.
  • To ascertain ways to help clients who may be hit by a letter requesting repayment.
  • To be able to list preventative measures to stop similar problems happening in the future.
How to make sense of GMP clawback


Tens of thousands of pensioners are potentially facing letters asking for money to be repaid from their pension schemes, following a long process of reconciling pension scheme data against HM Revenue & Customs data.

This process, which has been ongoing since 2016 and is due to wrap up later this year, involves all those pensioners whose defined benefit pension schemes - both private and public - were contracted out of the state earnings-related pension scheme (Serps) between 1978 and 1997.

These members will have opted out of the higher earnings-related national insurance contributions (Nics) in return for a lower state pension, in exchange for a guaranteed minimum pension (GMP). 

As Phil McGovern, managing director of MPA Financial Management puts it, "The GMP was designed to be guaranteed to be equal to the Serps giving up. It would form part of the overall defined benefit."

But the problem arose when HMRC realised the data collated by pension schemes was at best sketchy in places, with some pensioners' entitlements being calculated incorrectly, so that when any guaranteed increases on the GMP were paid by an increase in the state pension, the increases were, in fact, wrong.

Hence the process of reconciliation of scheme data with the (assumed-to-be-accurate) HMRC data. 

This means tens of thousands of people already in retirement face having to pay back money to the scheme administrators; in some cases this won't be much but in others, it could run into a bill of thousands of pounds. While some schemes have stated they will waive their right to claw back this money, many others are not. 

Individuals can, of course, wait for the scheme or HMRC to contact them with a begging letter, or clients can proactively work with advisers to see whether they could be affected, and to start taking steps themselves to put money aside to meet any clawback claims.

This guide explains why schemes are going through the process of reconciliation and explores the scale of the potential problems. It covers how contracting-out worked, and how pensioners can find out whether their old schemes were affected and whether they might be facing any bills.

It will present some ways that advisers can work with those affected now, and suggests some ways that the industry as a whole could work to prevent similar problems from rearing their heads in the future.

Contributors to this guide: Baroness Ros Altmann, former pensions minister; John Lawson, head of policy for Aviva; Phil McGovern, managing director of MPA Financial Management; Kay Ingram, director of public policy for LEBC; Sir Steve Webb, director of policy for Royal London; Keeley Paddon, head of technical, The SimplyBiz Group; the Department for Work and Pensions; HM Revenue & Customs.

Simoney Kyriakou is deputy editor of Financial Adviser 

In this guide


Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. What was never properly corrected, according to Ms Altmann?

  2. What might members see adjusted, according to Ms Ingram?

  3. How would a member know if they have been contracted out, according to Mr Lawson?

  4. What does Mr McGovern advise every client to do?

  5. What is the timescale mentioned by Ms Ingram, whereby if a scheme takes a certain period of time to notify the member, the member might not have to repay?

  6. What would incentivise schemes to improve record-keeping and keep members better informed, in Ms Ingram's opinion?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand how the GMP clawback problem started.
  • To ascertain ways to help clients who may be hit by a letter requesting repayment.
  • To be able to list preventative measures to stop similar problems happening in the future.

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