On the go: The Department for Work and Pensions is proposing to lower the guaranteed minimum pension fixed rate revaluation for early leavers by 0.25 percentage points.
In a consultation published on Thursday, the DWP said that the new rate of 3.25 per cent takes into account the recommendations from the Government Actuary’s Department, which proposed a rate ranged between 3 per cent and 3.5 per cent a year.
The revaluation rate is used by schemes that have chosen a fixed rate method to calculate the value of GMPs for early leavers — members who leave schemes before they reach their pensionable age.
This percentage is provided for in legislation, and it is reviewed every five years by the DWP. A new rate needs to be applied for those who leave pensionable service on or after April 6 2022, the consultation stated.
The recommendation from the GAD is based on a short to medium-term view on earnings assumptions being applied, and considers that most individuals leaving pensionable service between April 6 2022 and April 5 2027 (when the next review takes place) will be less than 10 years from the age at which GMPs are payable, it added.
Alasdair Mayes, partner at LCP, told Pensions Expert that a reduction in the fixed rate of GMP revaluation for future leavers “feels long overdue”.
He noted that national average earnings stood, on average, at 2.3 per cent a year over the past decade for GMP purposes, making the current fixed rate of 3.5 per cent a year “look rather high”.
“In that context, the proposed reduction of 0.25 per cent a year is smaller than many might have expected,” he argued.
However, Mayes noted that “as the years go by these periodic reviews affect fewer and fewer people”.
“Only those that have been earning benefits in the same scheme for around 25 years or more will be affected, and then only on a relatively small part of their pension,” he said.
He added: “The key point from the proposals for me is a reminder that GMPs earned many decades ago will continue to have an impact on pension scheme administration for decades to come.
“In tackling GMP equalisation, it’s important to work through not just the short-term task but also understand the long-term impact on administration.”
