Guaranteed Minimum Pension (GMP) Transfer
Transferring a Guaranteed Minimum Pension (GMP pension) to another type of scheme such as a personal pension, takes careful consideration. If you’re in this situation and want to get a better understanding of your options as well as the pros and cons of transferring a GMP pension, this article can help guide you in the right direction.
This article will cover:
What is the Guaranteed Minimum Pension (GMP)?
The Guaranteed Minimum Pension is the term used to describe the minimum pension that a UK occupational pension scheme is obliged to provide for any employees that were contracted out of the State Earnings-Related Pension Scheme (SERPS). As a defined benefit (DB) scheme, the GMP is an inflation-proofed, guarantee providing lifetime income whose value increases annually in line with inflation.
The thinking behind the GMP pension was to make things fair for those being moved off the original scheme, between 6th April 1978 and 5th April 1997, since they had not made the decision to do so. It was intended to ensure that recipients were given a guarantee that they’d receive a similar amount in retirement to that which they would have received had they not been contracted out of SERPS, which had been deemed too complex and was eventually abandoned in favour of a more streamlined system.
SERPS itself was concluded in 2002, and has now been entirely replaced by the State Second Pension or S2P.
What type of pension is the GMP?
A defined benefit (DB) scheme, once you start taking benefits from a GMP pension it is paid in regular installments like a retirement salary, but cannot be withdrawn as a lump sum or to a schedule set by you, as would be possible with many of the personal pensions that are now available. To access features of this type, you would need to transfer to another scheme.
Can I transfer my GMP?
Transferring your GMP is certainly possible, but there are several restrictions to be aware of and it’s likely to be a more complex process than some other types of pension transfer. Contracting-out regulations may require a member’s consent but some transfers are allowable as long as the transfer value is at least equal to the value of your GMP.
The pension experts we work with are experienced in helping customers to transfer with the best possible results on to more flexible schemes, so they will be well placed to help you out if you decide that transferring is the best route for you. Get in touch for a free, no-obligation chat.
It will not always be possible to hang on to all the benefits held within your GMP scheme. For example, death benefits and guaranteed income are likely to be non-transferrable in most cases, and you will certainly need to seek professional assistance from a qualified financial advisor if you choose to make the switch.
When can I transfer my pension?
As with all pension transfers, you will have generally needed to enact the transfer up to one year before you expect to start taking retirement benefits from the GMP scheme. In some cases it may be possible to make a pension transfer after you have started taking your pension, but this is less common.
Where can I transfer it to?
According to the advisors we work with, a GMP transfer to a personal pension is one of the most popular options among those who decide to transfer.
You can explore the following options when transferring a GMP:
- Personal Pensions, including:
- A different GMP scheme where the same benefits can be preserved
- Various occupational pension schemes
- Some overseas pension schemes
Each of these scheme types has different features and benefits, and choosing the right type will depend on your specific requirements. For example, you may want to choose a scheme with a drawdown facility, or you might want the freedom of being able to cherry pick your own investments. Speak to an expert to get an idea of the full range of available products.
One of the pension experts we work with will be able to explain all the options available to you, ensuring that once you reach pensionable age, your pension savings will deliver a comfortable income alongside whatever State Pension you are entitled to.
Should I transfer my pension?
This is a personal decision that will depend entirely on your own priorities, lifestyle, health and on the overall state of your finances.
For some people, the answer may be a straightforward ‘no’, because the benefits of having a guarantee on an income for life might outweigh the flexibility and freedoms afforded by other available options.
However, you may feel that you have adequate financial protection elsewhere, do not need the security of a regular income in addition, and would prefer to have free and easy access to the funds tied up in your GMP pension to raise larger sums at your discretion. For others, there may be a more urgent need to draw down a large sum of money in a short space of time, perhaps due to a sudden illness.
In certain cases it may make good financial sense if you transferred to a pension service that allows you to get instant access to your retirement funds as and when you need them. But before you make any decisions, it’s advisable to speak with an advisor first.
How do I transfer my pension?
The first thing to be aware of if you’re considering switching from your GMP pension scheme is that you”ll need to hire a qualified financial advisor. This is a legal requirement, as is the case for all pension transfers where the scheme you’re exiting is a defined benefit scheme, and is intended to safeguard your retirement funds.
Get in touch with us if you’d like us to put you in touch with one of the pension experts we work with.
Your advisor will talk through the options with you, and will be able to provide you with a clear picture of the best options in your individual circumstances. If staying put will make you better off than switching, they are obliged to tell you.
However, the ultimate decision will be yours to make. If you have decided to switch, your advisor will help you to acquire a transfer value for your pension, which sets out the cash equivalent of your GMP pension. You will then need to sign a Statement of Entitlement to facilitate the transfer.
Speak to an expert today
If you’re interested in transferring a GMP pension and are looking for the right advice from a qualified advisor, the pensions experts we work with are ideally placed to help you through the process. Give us a call on 0808 189 0463 or make an enquiry here, and we’ll be in touch shortly for a no-obligation initial consultation to discuss your requirements.