On 6 April 2016, the UK government introduced the new State Pension which removed the mechanism that enabled public servants in "contracted-out" employment between 1978 and 1997 to have their GMP fully price protected.

The government consulted between 28 November 2016 and 20 February 2017 on how GMP indexation and equalisation should be applied to public service schemes from 6 December 2018. An interim solution was introduced for the period 6 April 2016 to 5 December 2018 whereby public service schemes would pay the full indexation for members reaching State Pension age between these dates.

The three options under consideration for implementation from 6 December 2018 were:

  1. Case by case – an annual comparison of what a member would receive under the old and new system, which would also include a further comparator to ensure equalisation.
  2. Full indexation – a continuation of the interim solution
  3. Conversion – Convert the accrued GMP into a scheme benefit

The government considered the replies it received and issued a formal response to the consultation in January 2018. It was decided to extend the interim solution from 6 December 2018 to 5 April 2021 to allow further consideration of implementing GMP conversion as a longer-term solution. This ensured that public service pensioners had the GMPs they had earned in public service fully indexed by their public service pension scheme. The government committed to continuing to consult with departments and schemes to decide whether a suitable methodology and legislation can be developed to enable GMP conversion to take place in the future and take account of alternative solutions that may also address this issue.

Please see the note from GAD setting out the impact of the extended interim arrangement for GMP indexation on the application of some of the Schemes’ actuarial factors. Essentially this is an extension of the instructions that were issued in 2016 when the initial interim GMP indexation solution was announced.

On 7 October 2020 the government published a consultation on Public Service Pensions, Guaranteed Minimum Pension (GMP) indexation. The consultation sets out how the government proposes to ensure it continues to meet its past commitments to public service employees regarding the full indexation of public service pensions, including for any GMP element.

The consultation will last for 12 weeks and closes on 30 December 2020.

The consultation and supporting written ministerial statement can be found on the new consultations page of the Regulations and Guidance website.