DWP launches consultation on reduced GMP revaluation rate

The Department for Work and Pensions (DWP) has launched a consultation on the proposed move from 3.5 per cent per annum (pa) to 3.25 per cent pa in the rate of revaluation applied to fixed rate revaluation of Guaranteed Minimum Pension (GMP) for early leavers.

The new rate would apply to contracted-out members who leave pensionable service in the period 6 April 2022 to 5 April 2027.

It would represent a small reduction in the increases members will see on their GMPs if these are uprated according to the fixed rate, although schemes which revalue GMPs based on the fixed rate will also see a slight decrease in projected GMP costs.

Advice on the rate of revaluation was sought from the Government Actuary’s Department, which recommended a rate ranged between 3 per cent and 3.5 per cent pa, based on short- to medium- term view on earnings assumptions being applied, and given that most individuals leaving pensionable service when the next review takes place will be less than 10 years from the age at which GMPs are payable.

However, the DWP's proposed rate does not include an additional premium of 0.5 per cent pa for the certainty that employers get from revaluing in line with a fixed rate.

The consultation explained that the rationale for not including a premium is "unchanged" from the approach adopted to set the fixed revaluation rate in 2017 in that the nature of the relationship between schemes and the state has fundamentally changed since the introduction of the single-tier pension.

It also said that, given the shortened timescales, there is less uncertainty around the increases in earnings for the members in question compared to looking over the longer term.

The consultation, which runs until 18 November, is aimed at pension administrators and employers who sponsor formerly contracted-out defined benefit occupational pension schemes.

However, DWP said that it also welcomes comments from pension industry professionals, pension schemes, trustees and pension scheme members or member representatives.

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