Expert Gareth Shaw offers advice on building entitlement to the state pension
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The State Pension is overseen by the Department for Work and Pensions (DWP) to ensure everyone receives the amount to which they are entitled. This can be unlocked when a person reaches state pension age, currently set at 66 for most. However, in updated guidance from the Department, some individuals will need to pay attention regarding the sum they will receive.
This is the case for those who have what is known as a Guaranteed Minimum Pension (GMP).
The Government website explains: “If you have a Guaranteed Minimum Pension, the new state pension could affect the amount of money you get when you reach your state pension age.”
Those who may be affected are individuals with a GMP who reach state pension age on or after April 6, 2016.
A GMP is a minimum pension usually provided by a workplace pension scheme.
It will only apply to those who were contracted out of the Additional State Pension between specific dates.
The dates to bear in mind are April 6, 1978 to April 5, 1997.
A person in receipt of GMP will usually get the same amount, or more than, the Additional State Pension they would have otherwise received if they were not contracted out.
But for many, having an understanding of how this might impact their state pension sum is key.
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Pension schemes are required to, annually, increase the amount of GMP built up from April 1988 to April 1997 in line with living costs.
Capped at a total of three percent, this is known as “indexation”.
Between April 1978 and April 1988, however, this was not required.
The Government website continues: “To stop people with GMPs losing out they could be paid increases to cover living costs through the Additional State Pension.
“It only applied to people reaching State Pension age before April 6, 2016.”
As the new state pension started on this date, those reaching their state pension age then or after will receive the new state pension sum.
Consequently, they will not get the Additional State Pension from the Government, which would have included indexation.
Increases like these, the Government pointed out, ended upon the commencement of the new state pension.
This, for example, could impact those who reach state pension age on or after April 6, 2016, and do not get Additional State Pension or these increases.
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While the weekly loss can be a negligible amount, it can build up over time.
In fact, the Government has warned of a “notable loss” for individuals with a large GMP who reached state pension age from April 2016 to March 2017.
However, all is not lost for Britons who are affected in this way, and some can build up more pension under the new state pension arrangement.
The Government concluded: “The new state pension means some people who had been contracted out can build up a maximum of over £2,150 a year more pension (based on 2021 to 2022 rates) than they could under the old state pension.”
Those who want to know more about their state pension are encouraged to source a state pension forecast from the Government’s website.
Individuals over state pension age, however, will need to call the Pension Centre for more information.
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