Ombudsman confirms DWP “not open and accountable” about GMP

26 November 2019

The Parliamentary and Health Services Ombudsman has confirmed that the Department of Work and Pensions (DWP) failed to correctly advise individuals with Guaranteed Minimum Pensions (GMP) who would stop receiving inflation top-ups after the new state pension was implemented in 2016.

The DWP should have explained that the end of contracting out would be disadvantageous to the increases that savers with GMP would receive but were found to be “not open and accountable” on the topic.

The Times reported that the ombudsman had stated,

“The DWP failed to fully acknowledge and explain negative impacts of pension reforms to those with large periods of contracting out, due to reach state pension age shortly after April 2016.”

The ombudsman launched an investigation into the issue following a complaint but those who have suffered financially due to the change have currently got no entitlement to compensation. The DWP will now have three months to respond to the Ombudsman in relation to the action that it will take to ensure that affected parties receive correct communications on the issue of their state pensions.

Contracting out allowed defined benefit schemes to opt-out of the state earnings-related pension scheme (SERPS) to ensure that workers were not receiving triple pension benefits combining a basic state pension, SERPS and an earnings-related occupational pension. The decision to contract out meant that both employee and employer could pay a reduced rate of national insurance, on either code D or N on payroll, but that the worker did not build up rights under SERPS if their scheme offered a GMP. From 1978-1997, GMP did not have to be increased along with inflation but from 1988 – 1997 this changed and was introduced with a maximum cap of three per cent per year.

With the arrival of the new state pension in 2016, contracting out and SERPS were abandoned, along with inflation increases for private sector schemes. Inflation increases continued for public sector staff.

Experts have commented that it would be nigh-on impossible to determine who has been affected by this complex situation, but the Ombudsman have addressed that DWP failed to correctly advise members and will await the response relating to how they will rectify this.

 


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