State pension: DWP updates how Guaranteed Minimum Pensions affects payments – claim more

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State pension payments can be altered by certain private pensions a person may have contributed to during their working years. Today, the DWP issued updated guidance on how GMPs can impact retirement planning.

The DWP explained a GMP is a minimum pension that a workplace pension scheme normally provides.

It only applies to people who were contracted out of the additional state pension from April 6 1978, to April 5, 1997.

The GMP a person would get from a workplace pension scheme is usually the same, or more than, the additional state pension they would have got if they had not been contracted out.

The DWP went on to cover how the new state pension and GMPs would affect each other: “Each year pension schemes have to increase the amount of GMP built up from April 1988 to April 1997 in line with living costs, this is capped at three percent.

“This is called ‘indexation’. Pension schemes did not have to provide indexation to GMPs built up between April 1978 and April 1988.

“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.

“The new state pension started on April 6, 2016. If you reach your state pension age on or after this date you will get the new State Pension.

“You will not get the Additional state pension from the Government which would have included your indexation. These increases ended when the new state pension started.

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“Example of how this might negatively affect you:

  • If you got a weekly GMP of £35 in 2015 and inflation was two percent, then the next year your Additional state pension would be a maximum of 70 pence per week higher
  • If you reach state pension age on or after April 6, 2016 you do not get additional state pension or these increases

“The weekly loss is small for the first year but can build up over time. Somebody with a large GMP reaching state pension age from April 2016 to March 2017 could have a notable loss over their whole retirement.”

The DWP detailed, under the new state pension rules, a person who had contracted out could build up a maximum of over £2,150 a year more than they could under the old state pension rules.

The new state pension can be claimed by men born on or after April 6, 1951, or women born on or after April 6, 1953.

To be eligible for the state pension, a person must have at least 10 years of qualifying National Insurance contributions under their belt.

At least 35 years will be needed for the full payment of £179.60 per week.

State pensions can only be claimed when a person has reached their state pension age.

Currently, this is 66 for most people.

However, the Government plans to increase the state pension age to 67 between 2026 and 2028.

Beyond this, it will rise to 68 by 2046.

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