We undertook a review of the fixed rate of guaranteed minimum
pension revaluation for early leavers. The work was commissioned
as part of a government consultation.
Revaluation rate
Experts at the Government Actuary’s Department (GAD) reviewed the
fixed rate of guaranteed minimum pension (GMP) revaluation for
early leavers.
The Department for Work and Pensions (DWP) had asked GAD to
undertake the review. It was for early leavers in contracted-out
employment before 6 April 2016 and who leave service on or
between 6 April 2022 and 5 April 2027.
Inflation and wage growth
As a result of GAD’s analysis, we proposed a fixed revaluation
rate of between 3% per year and 3.5% per year would be an
appropriate range. This conclusion was based on current trends
and expectations in inflation and wage growth, with 3.25% deemed
a reasonable assumption.
One of the authors of GAD’s report was actuary Hayley Spencer:
“While GMP is a technical pensions subject, the fixed revaluation
rate assumption does directly impact the level of individual
pension payments.
“In our analysis we considered the consumer prices index and any
upcoming gaps between inflation and earnings.”
Following the GAD review, the DWP launched a
consultation which ran from 23 September 2021 to 18 November
2021. It asked stakeholders on the new fixed rate percentage and
GAD’s
report was included as an annex to the consultation.
Consultation ends
The consultation response
to the GMP revaluation was published on 21 February 2022. The
consultation received 2 responses, one from the Pensions
Administration Standards Association and the other from an
individual.
The government has said the small number of responses suggests
the industry is largely content with the proposed rate.
New revaluation rate
DWP has now confirmed the fixed rate of revaluation of GMPs. It
will be 3.25% per year for early leavers in contracted-out
employment before 6 April 2016 and who leave service on or
between 6 April 2022 and 5 April 2027.
This is a decrease from the current rate of 3.5% a year. This
percentage is provided for in legislation and is reviewed every 5
years by DWP.
