What is a guaranteed minimum pension (GMP)?

You might have a guaranteed minimum pension (GMP) only if you were a member of a defined benefit (final salary) public sector pension scheme between 1978 and 1997.

Your GMP is a top-up to your pension, and the minimum amount of income that this workplace pension must provide you in retirement. 

It is there to replace the additional state pension you would have received between 1978 and 1997 had you not been contracted out of this extra part of the state pension. 

It is usually the same, or more, than you would have received in additional state pension if you had not been contracted out, and as such, only represents a small part of most people’s pension pots.

Why do I have a GMP?

Members of defined benefit pension schemes between 1978 and 1997 were automatically removed from part of the state pension, known as the state earnings related pension scheme (SERPS).

This was called being ‘contracted out of SERPS, and the schemes that did this were called contracted-out salary-related schemes (COSR)’. 

To ensure that the members of these schemes did not lose out as a result, the government guaranteed them a minimum pension broadly equivalent to the amount they would have received if still in the SERPS.

The GMP only applies to scheme members who were contracted out automatically by their pension scheme.

If you contracted out of SERPS via a defined contribution workplace or personal pension, you are not entitled to the GMP. 

Most people with GMPs are in public sector schemes, such as local government, police and firefighter schemes.

What is a contracted-out salary-related (COSR) scheme?

A contracted-out salary-related (COSR) scheme is a defined benefit scheme that contracted out of SERPS (later called the state second pension) before 2016.

Note that not all COSR schemes offer a GMP, as this only applies to memberships between 1978 and 1997.

However, between 1997 and 2016, a number of schemes still automatically contracted their members out of SERPS/the state second pension. From 1997 onwards, the GMP was replaced by the reference scheme test.

What is the reference scheme test?

The reference scheme test was introduced from 1997 to ensure that the benefits provided by some workplace pensions met a certain recommended level.

Generally, it requires that a pension scheme must provide at least 1/80th of your earnings multiplied by your years of membership, with a spouse’s pension of half this level if you pre-decease your spouse.

If the scheme passed the test, it was allowed to be contracted out, and a GMP was not required.

When will I get my GMP?

If you qualify for a GMP, it will be paid from your 60th birthday if you are a woman, or your 65th birthday if you are a man.

In this respect, it is not affected by increases in the state pension age.

After a court ruling, pension schemes are now required to equalise pensions for women and men to take into account inequalities caused by different pension ages in the past. This is a complex exercise, and not all schemes have completed it yet. 

If your pension will change due to this, you should receive a letter from your provider.

How is my GMP paid?

GMP is always paid as an annuity, a guaranteed income for life.

You do however have a choice of annuities, as you can choose the ‘open market option’ and shop around for the provider that offers the highest income.

A financial adviser will be able to explain your GMP annuity options.

You can also choose to defer your GMP in some cases if you are still working. Again, this is a complex process with many different calculations, so a financial adviser will need to help you with this.

How is my GMP calculated, and how much will I get?

Your GMP is worked out based on your level of NI contributions, the length of time you were in the pension scheme, and how much of this was pre-1988 and post-1988.

It is best to ask your scheme exactly how much you will receive, as the calculation is not a simple one.

In April 2025, GMPs in payment increased by 1.7%, in line with the Consumer Prices Index (CPI) inflation for the year to 30 September 2024. They will increase again in April 2026, with the increase expected to be 3%, as the total increase is capped at this level when CPI inflation is higher.

You should receive a letter from your provider explaining how much your payments will increase. 

Can I take a lump sum from my GMP?

You cannot take a lump sum from a GMP. It can only be paid as income via an annuity.

If you want extra flexibility as to how to access the GMP portion of your retirement savings, then you will need to transfer it.

Can I transfer my GMP?

You can transfer a GMP to a personal pension scheme in the same way as you can transfer some defined benefit pensions.

However, it will not always be the best course of action. For example, you will lose the guaranteed income and the death benefit features of your GMP should you choose to transfer out.

You will need to consult a financial adviser if you are considering this option.

Get expert financial advice

Given the complexities of GMP calculations and potential transfer implications, speaking to a financial adviser is essential to make informed decisions about your retirement income.

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