Does a guaranteed minimum pension increase each year?

Does a guaranteed minimum pension increase? Partly: the scheme must raise the 1988 to 1997 slice each year, up to a cap, but not the slice built before 1988.

Does a guaranteed minimum pension increase once it is being paid?

It depends which years of service the GMP came from. Your scheme pension may carry two GMP slices, and the law treats them differently once the GMP is in payment. Wondering which slices yours holds? An FCA-authorised adviser can answer that for you, and a call-back is free: it is the form on this page that books it.

That table is HMRC's guidance to scheme administrators. It adds that the first increase is due on 6 April after the GMP becomes payable. Section 109 of the Pension Schemes Act 1993 is where the 3% limit comes from: the yearly order for the 1988 to 1997 slice is the rise in prices or 3 per cent, "whichever is less". So in a year when prices rise 5%, that slice rises 3%, and the pre-1988 slice rises by nothing unless your scheme's own rules go further.

HMRC also says that "Schemes are not permitted to pay such increases out of other benefits in the scheme which are in excess of the GMP." In other words, the scheme cannot fund the GMP increase by trimming the part of your pension above the GMP, which follows its own increase rules, covered in do final salary pensions increase.

Why the pre-1988 slice can stand still, and what the State used to add

The old State Pension had a second tier, the Additional State Pension, and a scheme that contracted out of it promised to provide the GMP instead. An HM Treasury consultation describes how the two used to fit together. The State increased the Additional State Pension a contracted-out member had built up, in line with prices, took off a deduction broadly equal to the GMP including any increase the scheme had paid, and paid what was left as part of the State Pension. The consultation says many consider that surplus to be, in effect, indexation of the GMP.

The consultation then says: "It is this payment that is no longer made under the new State Pension." The new State Pension began on 6 April 2016, and GOV.UK confirms that all contracting out stopped on 5 April 2016. DWP's guide to the GMP and the new State Pension says of those increases: "It only applied to people reaching State Pension age before 6 April 2016." If you reach State Pension age on or after that date, the State no longer covers the part of the GMP the scheme does not increase.

The consultation was about public service schemes, where DWP says the indexation is protected and paid by the pension scheme instead; for the NHS in particular see NHS pension increases. What a private scheme pays beyond the legal minimum is for that scheme to tell you; an adviser can go through what the missing State top-up means for your income after you request a call-back.

Guaranteed minimum pension revaluation: what happens before GMP age?

If you left the scheme before GMP age, which is 60 for a woman and 65 for a man, the GMP is not frozen. HMRC says "The GMP of early leavers must be revalued up to GMP payable age (age 60 for a woman or age 65 for a man), or death if earlier." This is revaluation, and it is a separate rule from the increases in payment above. Your deferred pension statement shows the whole pension, not just this piece.

Schemes can use one of three methods, according to HMRC: "GMPs can be revalued using section 148 orders (full) revaluation, fixed rate revaluation or, where the date of termination is before 6 April 1997, limited rate revaluation."

• Section 148 orders. The earnings behind the GMP are raised by the yearly Social Security Revaluation of Earnings Factors Order, which follows national average earnings.
• Fixed rate. A compound percentage for each year after you left. The Government Actuary's Department reports 3.25% a year, down from 3.5%, where you had contracted-out service before 6 April 2016 and your leaving date falls from 6 April 2022 to 5 April 2027. DWP reviews the figure every five years; its autumn 2026 consultation, which closed on 29 October, proposed keeping 3.25% for leavers from 6 April 2027 to 5 April 2032. Earlier leaving dates carry other rates.
• Limited rate. Only for leavers before 6 April 1997: 5% compound a year, but at GMP age the scheme pays the lower of that and the section 148 result.

Which method your scheme used, and what your own figure came to, is on your scheme's records. Ask the administrator for the GMP and the revaluation method.

Guaranteed minimum pension escalation: can a scheme pay more than the minimum?

Yes. The legal rules set a floor, and HMRC's guidance on GMP equalisation notes that schemes "often provided for different rates of revaluation and or indexation on the part of the pension underpinned by the GMP and benefits above the GMP". Your scheme rules may increase the whole pension, GMP included, by a measure more generous than the cap. The reverse is not possible for the 1988 to 1997 slice: the scheme cannot go below the legal increase.

Increases a scheme pays during the year can be counted against what the law requires on the next 6 April, according to HMRC. So a scheme that has already given a rise during the year may owe less when 6 April comes. Delaying payment matters too: HMRC says "If the deferment is for 7 weeks or more, the scheme must increase the GMP by one seventh of a per cent for each complete week in the period of deferment."

Could GMP equalisation change the figure?

Possibly. Men and women had different GMP ages and accrual rates, which HMRC says can leave a gap in treatment that schemes are obliged to put right under equal treatment duties. A High Court ruling in the Lloyds Banking Group case in 2018 held that trustees must equalise, so some people have received a revised figure or a back payment. The method differs between schemes, and the detail is on GMP equalisation explained.

The basics of the GMP itself are in what a guaranteed minimum pension is.

How to check what your own GMP increase is

Start with the figure on your statement. Finding your own guaranteed minimum pension shows how to ask. Then ask the administrator three things: how much of the GMP dates from before 6 April 1988 and how much from after; whether the scheme pays more than the legal minimum; and, if you left early, which revaluation method was used. How contracting out changed between the two State Pension systems is on the old and new State Pension compared page.

Whether to leave the pension as it is depends on more than the GMP. Leave your details for a call-back and an adviser can look at it alongside your other income, free.

Questions people ask about GMP increases

Does the whole GMP rise with prices?

Only in part, and only up to a cap. The slice built up from 6 April 1988 must rise by CPI up to 3%; the slice before that has no legal requirement, though scheme rules may add one.

Does the Additional State Pension still top up a GMP?

Not for people on the new State Pension, which began on 6 April 2016. For how the old tier is treated in the State Pension you may have, see whether the Additional State Pension increases and contracted-out State Pension.

Can a GMP go down?

A scheme that was contracted out must still provide a pension at least as good as the GMP for that service. The wider question of a pension falling is in can final salary pensions go down.

Does a GMP increase if I defer taking it?

Yes, if payment is put off beyond GMP age for seven weeks or more, the scheme adds an increment at one seventh of a per cent for each complete week. Revaluation before GMP age is a separate rule.

What should I weigh before transferring a pension that includes a GMP?

A transfer cannot be reversed. If the safeguarded benefits, measured by their transfer value, come to more than £30,000, the law makes the scheme confirm you had appropriate independent advice before it pays out (SI 2015/742, regulation 5). The FCA says "The FCA and The Pensions Regulator (TPR) believe it’s in most people’s best interests to keep their DB pension." How a transfer value is worked out is in pension transfer values.