LTB486.2016 BT Pension Scheme: Guaranteed Minimum Pensions Increases

No. 486/2016

19th August 2016

Dear Colleagues,

BT Pension Scheme: Guaranteed Minimum Pensions Increases

Changes in the law introduced by the Conservative Government will reduce the increases to Guaranteed Minimum Pensions (GMP) for BT Pension Scheme (BTPS) members reaching State pension age on or after 6th April 2016.

This unwelcome news is a direct result of changes to state pension arrangements which reverse the approach of successive Governments.

Due to the timing of the changes the first impact on BTPS members will be from April 2017.

Background

The GMP is the minimum pension which a United Kingdom occupational pension scheme has to provide for those employees who were contracted out of the State Earnings-Related Pension Scheme (SERPS) between 6th April 1978 and 5th April 1997. Many defined benefit pension schemes, including the BTPS, were opted out of SERPS during this period.

Before 6th April 2016 GMPs were increased in part by the State and in part by the BT Pension Scheme (BTPS). However, under the new single-tier State pension system introduced from 6 April 2016, the Government has decided that the State will no longer fund increases in GMPs.

The changes are summarised below.

Pre 6 April 1988 GMP

Post 6 April 1988 GMP

Reaching state retirement age before 6 April 2016

Government pays CPI increases.

Scheme pays CPI increases up to 3%. Increases above 3% paid by Government.

Reaching state retirement age on or after 6 April 2016

No increase.

Scheme pays CPI up to 3%. No other increase.

This means that most members of private sector defined benefit pension schemes across the UK who reach State pension age on or after 6th April 2016, will only receive increases of up to 3% in future on GMPs earned from 6th April 1988.

The impact of the change will vary depending on individual circumstances and will be less pronounced while inflation is low.

It should be emphasised that the GMP changes do not alter the other indexation arrangements for the BTPS pensions which are linked to CPI in Sections A/B and RPI up to 5% in Section C.

Impact on the BT Pension Scheme

The impact of the changes depends on which Section members are in.

  • Section A and B
  • This means that the BTPS is required to similarly protect the GMP element of Section A/B members for that period. The position which will apply after 2018 is unknown at this time.
  • The PCSPS is required by a Ministerial Direction dated 6th April 2016 to fully price protect the GMP element of individuals who reach State Pension age between 6th April 2016 and 5thDecember 2018.
  • The BTPS Rules require pensions to be increased in accordance with pension increase legislation, as if the pension was payable under the Principal Civil Service Pension Scheme (PCSPS).
  • There will be no change until at least December 2018.
  • Section C
  • A copy of a communication from the Trustee that was posted on line today is below.
  • As the BTPS deficit was estimated to be £9.9 billion last year, the Union does not see that there is any chance of changing BT’s position in the medium term.
  • The CWU has pressed BT to make additional discretionary payments to the BTPS to pick up the cost of the lost indexation and so reverse the Government cuts. BT has declined to make any additional payments due to the current costs of funding the BTPS and the current deficit.
  • For members in this Section the changes will be applied from April 2017 onwards.

Further Information

The CWU cannot provide information about individual pension entitlements or offer financial advice. However, members can find out more information from the following sources.

BTPS members can find out more about their pension at www.btpensions.net.

If individuals have questions about their own pension they should contact the Scheme administrators via www.btpensions.net/157/contact-details.

Yours sincerely,

Nigel Cotgrove

Assistant Secretary

GMP Increase Issue Wording for BTPS Website and Member Booklets

“The increases payable by the Scheme on the Guaranteed Minimum Pension (GMP) element of your BTPS pension are determined by the BTPS rules and relevant legislation. No changes have been made to the increase provisions in the BTPS rules. However, the government has changed the law and this impacts the increases which will be payable on your GMP in future.

In summary, the GMP is the amount of pension built up in the BTPS and which the BTPS must provide to you as a result of your employment being contracted out of SERPS/ State Second Pension (S2P) up to 1997.

The position may be different in other pension schemes so please check those if you have other pensions outside of the BTPS.

FOR SECTION A AND B MEMBERS

If you reached State pension age before 6 April 2016, the government will continue to pay the increases on your GMP built up before 6 April 1988. The Scheme will continue to pay increases on the GMP element of your BTPS pension that was built up after 5 April 1988, in line with orders published by the government, up to 3% each year. Any increase above 3%, on the GMP you built up after 5 April 1988, will be paid by the government. Increases paid by the government will be paid along with your basic State Pension and any additional State pension you receive.

If your State pension age is on or after 6 April 2016 and up to and including 5 December 2018, any increase due on the GMP element of your BTPS pension will be paid by the Scheme.

If you reach State pension age after 5 December 2018 any increase on the GMP element of your BTPS pension will depend on the application of the BTPS rules and relevant legislation at the time. We are not able to be more precise at this time as the government has not yet decided what the requirements will be.

FOR SECTION C MEMBERS

If you reached State pension age before 6 April 2016 the government will pay the increases on your GMP built up before 6 April 1988. The Scheme will pay increases on the GMP element of your BTPS pension built up after 5 April 1988, in line with orders published by the government, up to 3% each year. Any increase above 3%, on the GMP you built up after 5 April 1988, will be paid by the government. Increases paid by the government will be paid along with your basic State Pension and any additional State pension you receive.

If your State Pension age is on or after 6 April 2016, the Scheme will pay increases on the GMP element of your BTPS pension built up after 5 April 1988, in line with orders published by the government, up to 3% each year. As a result of changes made by the government, no increases will be paid on the GMP element of your BTPS pension built up before 6 April 1988.”