In September 2019, the Parliamentary and Health Services Ombudsman found the Department for Work and Pensions had failed to inform certain savers that they would stop receiving inflation top-ups after the new state pension was introduced in 2016.
The ombudsman ruled the DWP “should ensure that its literature clearly and appropriately points out that some individuals who have large GMPs and reach state pension age in the early years may be negatively affected by the changes.”
It continued: “It should explicitly tell people to check their circumstances and should provide details to the public about how they can do this.”
But campaigners argue the government has still not acted on the issue, leaving people uninformed and potentially worse off.
The issue concerns savers with guaranteed minimum pension benefits who had contracted out of their state earnings-related pension scheme entitlement – who were typically members of a DB scheme.
GMPs were created due to contracting out, which meant defined benefit schemes could prevent their members tripling up on pension benefits by building up a basic state pension, state earnings-related pension scheme entitlement, and an occupational pension. In exchange for giving up Serps, both employees and employers paid less in national insurance contributions.
Schemes were not required to increase the GMP accrued between 1978 and 1987 in line with inflation. But benefits accrued between 1988 and 1997 were indexed, up to a maximum of 3 per cent a year.
But when the new state pension was introduced in 2016, contracting out ended and Serps was scrapped. Inflation increases for private sector schemes were also stopped — although they continued for public sector workers.
DWP ordered to communicate issue
GMPs are one of the most complex areas of retirement saving and last year the ombudsman compensated two individuals £500 and £750 respectively for the frustration and inconvenience caused by the DWP's lack of communication on this topic.
One of them has since died and his friend, Chris Thompson, a campaigner and a retired pension professional, is still waiting on the government to communicate changes around GMPs to those affected.
Mr Thompson is also angry at the unequal treatment meted out to private sector DB pensioners while public sector members are sheltered from the change.
He argued the government “had the nerve to pass a special law just before the new state pension started that public service schemes would have to take over the payment of GMP indexation in March 2016".